The top priorities of registered investment advisors (RIAs) in 2016 include bolstering cybersecurity, investing in technology and people and building a foundation for scalable growth, according to a study conducted by TD Ameritrade (AMTD).
Legal, compliance and regulatory issues, meanwhile, are no longer the No. 1 concern among advisors as they had been for the last few years, the survey found. Instead, advisors are worried about the transfer of generational wealth, which they see as the biggest competitive threat to their practices.
The survey queried 302 RIAs whose firms on average manage $265 million in assets. Read on to see if your business outlook is in tandem with your peers'. (For related reading, see: Tips for Small RIAs Looking to Grow.)
Path to Growth
Many RIAs saw strong growth in 2015 and expect that trend to continue in 2016. Most (79%) project continued growth in assets under management (AUM) this year. They predict assets will increase by 17% on average in 2016. Of the 63% of advisors whose firms added clients in the second half of last year, the average growth rate was 13%. TD Ameritrade also found that half of the firms surveyed reported higher revenue during this period. Revenue rose on average by 14%.
Top management priorities for RIAs include improving the efficiency of their firms, enhancing client service and delivery, and investing in new technology. When it comes to technology, cybersecurity is the top priority. Implementing customer relationship management systems that can help fuel growth by giving them deeper insights into their clients and helping them identify prospects follows as a priority.
To attract new clients and grow assets, more than half of RIAs said they will target new client niches this year and 47% plan to spend more on marketing and advertising.
To help sustain growth, the survey found that RIAs are investing in people. Nearly one-third said they plan to hire junior advisors this year. This will free senior partners to focus on key clients and business development. More than one in four will add back-office staff to help their firms achieve greater scale. (For related reading, see: RIAs: Why Discounting Your Fees Is a Big Mistake.)
Advisors said they are attracting clients from a broader range of channels, with a smaller portion sourced from full-commissioned brokers compared to prior surveys conducted by TD Ameritrade. In this year’s survey, RIAs of all sizes reported adding more investors who were previously self-directed or clients of other RIAs, though this trend is particularly strong among advisors managing more than $250 million in assets.
Robo-Advisors Will Help
The growing popularity of robo-advisors and the competition they pose in the financial advisory arena dominated the news last year and continues to do so. But it appears that traditional RIAs are for the most part unconcerned. Only 1% are "extremely concerned" about the threat of robo-advisors to their businesses. This is consistent with a survey conducted last year by TD Ameritrade. Just over half (51%) of advisors this year are "not at all concerned," compared to 62% in 2015.
A small yet still significant number of RIAs (14%) said they are implementing online investing services as part of their growth plans. They are developing new online advice tools or robo-advisor offerings to attract the new generation of younger investors. Most of these RIAs are taking steps now to do so now with 85% planning to launch these new services by the end of 2016. This includes 50% who expect their robo-advisor offerings to be up and running by the end of June. (For related reading, see: Advisor Tips for Marketing to Niche Clients.)
Outlook for Clients More Cautious
Overall, RIAs remain upbeat about the U.S. economy and their outlook for the stock market. But when it comes to client portfolios, they are hedging their optimism with a bit of caution. Only two in five advisors expect the U.S. stock market to rise in the first half of 2016.
In particular, RIAs are focused on the impact of interest rates on stocks and bonds. They also believe that subdued U.S. corporate earnings growth and unemployment could significantly impact client portfolios this year.
As a result of this cautious outlook, 64% are shifting clients into less volatile assets. The top three protective moves advisors are taking with their clients’ portfolios are moving out of bonds and other rate-sensitive investments, followed by selling securities and rotating into cash.
RIAs are focusing on a number of former emerging trends that have now come into fruition. They are worried about the end of near-zero U.S. interest rates, the transfer of wealth from older clients to next generation of investors and the challenges of sustaining growth at their firms. (For related reading, see: How Advisors Can Tackle the Big Wealth Transfer.)
The survey found that advisors are far more concerned about macro-economic trends and evolving client needs than they are about legal, compliance and regulatory issues. The latter had been the top worry among advisors since 2012. For the first time, generational wealth transfer is the new top competitive threat for RIAs. This is followed by the fear of investors choosing to manage their own finances online.
Because they are optimistic about the growth of their firms, most RIAs surveyed say they are in no hurry to retire. They are still, however, taking a number of steps to prepare their firms for succession. At an average age of 53 years old, less than 10% of the advisors surveyed expect to retire within the next five years and two-thirds say retirement is at least a decade away. At the same time, though, 24% say they may retire within the next six to 10 years.
The survey found that advisors are taking a multi-pronged approach to succession planning. Most say their successors will come from within the firm and many expect to hire and groom experienced financial advisors to take over when the time comes.
The Bottom Line
RIAs are optimistic about the growth of their practices in 2016. Investing in technology and people are some of the ways they plan to support this growth. At the same time, legal, compliance and regulatory issues have taken a back seat to generational wealth transfer as a top concern. When it comes to their clients’ portfolios, they are taking a more cautious approach by shifting them into less volatile investments. (For related reading, see: Tips for RIAs Looking for Long-Term Growth.)