2015 Registered Investment Advisor Study. by Scottrade Advisor Services

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1 2015 Registered Investment Advisor Study by Scottrade Advisor Services

2 Scottrade Advisor Services commissioned a study of independent registered investment advisors (RIAs) to examine attitudes and behaviors of advisors regarding their businesses and their clients. By looking at the responses collectively, Scottrade Advisor Services is able to identify trends impacting RIAs. Overview A financial advisor s role in an investor s life continues to change. With the growth of the robo-advisor to changing priorities for various generations, advisors are asked to assist with goals uncommon 20 years ago. With Boomers nearing retirement and Gen X being the next up, how will advisors have to evolve their business to be able to meet their needs? To find out the answer to this question and many others, Scottrade Advisor Services commissioned a study by Harris Poll and surveyed nearly 400 advisors to gather information about industry trends and business practices. The 2015 Scottrade Advisor Services RIA Study was conducted Aug. 3 18, 2015, in collaboration with Harris Poll, an independent third-party research firm not affiliated with Scottrade Financial Services, Inc., its business units or subsidiaries. The 373 Registered Investment Advisors were aged 18 and older and were employed at firms managing at least $10 million in assets under management. This online survey is not based on a probability sample, and therefore, no estimate of theoretical sampling error can be calculated. For complete survey methodology, please contact mediarelations@scottrade.com. Scottrade Advisor Services is a division of Scottrade, Inc. All products and services offered by Scottrade, Inc. Member FINRA/SIPC. The information and content provided is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product, or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances, and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy. Testimonials may not be representative of the experience of other advisors and are no guarantee of future performance or success. Scottrade Advisor Services // Page 2 of 16

3 KEY TRENDS 4 Business Strategies While client retention is important to their business goals, RIAs are more focused on growth and technology. 6 RIA Services Larger RIAs are more confident in offering niche services (education planning, healthcare planning) to clients than their smaller competitors. 8 Generational Needs Gen X and Gen Y are asking advisors for shorter-term needs. 10 Robo-advisors Nine in 10 RIAs say robo-advisors will become more widespread in the next two years. 13 Technology Concerns Integration of software is the top technology pain point for advisors. Scottrade Advisor Services // Page 3 of 16

4 BUSINESS STRATEGIES If advisors had an extra dollar to invest, growth was the most frequent selection. More than one-third of RIAs polled would choose to allocate that dollar to growth while one-quarter would do so for technology. If you had an extra dollar to invest into your business, into which of the following areas would you allocate that dollar? Please select one response. Growth 38% Technology 25% Employee/Talent Management 13% Client Service 12% Operations/Processes 8% Compliance/Regulation 4% Scottrade Advisor Services // Page 4 of 16

5 RIA s Business Investment Priorities If you had an extra dollar to invest into your business, into which of the following areas would you allocate that dollar? Please select one response. $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 50% 40% 30% 20% 10% 0% Growth Technology Employee/Talent Management Client Service Operations/ Processes Compliance/ Regulation One advisor who selected growth stated their firm has a solid infrastructure, client services, operations and a culture of compliance. Growth has been our biggest challenge and if we grow, employee expansion and technology growth will follow. Scottrade Advisor Services // Page 5 of 16

6 RIA SERVICES When asked about how confident RIAs are in their ability to offer certain services to their clients, helping clients plan for retirement topped the list. How confident are you in your ability to provide the following services to your clients? Retirement planning 76% Growing assets 69% Protecting assets 59% Financing children s education 58% Wealth transfer 56% Financing a home 53% Estate planning 47% Tax planning 45% Financing parent s healthcare/living expenses 39% Planning for healthcare as they age 39% Scottrade Advisor Services // Page 6 of 16

7 Services RIAs Feel Very Confident in Providing How confident are you in your ability to provide the following services to your clients? $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 80% 60% 40% 20% 0% Retirement planning Growing assets Protecting assets Financing children s education Wealth transfer Financing a home Estate planning Tax planning Financing parent s healthcare/living expenses Healthcare as they age More than three-quarters of advisors polled said they are very confident in providing retirement planning to clients. RIAs managing less than $100 million are more confident in helping their clients with retirement planning and helping clients grow their assets than with other services. Scottrade Advisor Services // Page 7 of 16

8 GENERATIONAL NEEDS While retirement planning is one of the main features of an advisor s practice, RIAs say they are seeing their younger clients come to them for advice on short-term goals. Thinking about your daily interactions with clients in the last 12 months, in which areas are your clients requesting assistance? Please select all that apply for each age group. Retirement planning Millennials 26% Gen X 57% Boomers 77% Seniors 40% Scottrade Advisor Services // Page 8 of 16

9 Client Priorities (by generation) Thinking about your daily interactions with clients in the last 12 months, in which areas are your clients requesting assistance? Please select all that apply for each age group. Millennials (18 34) Gen X (35 49) Boomers (50 69) Seniors (70+) 80% 60% 40% 20% 0% Retirement planning Estate planning Protecting assets Growing assets Healthcare as they age Tax planning Financing children s education Financing a home Financing parent s healthcare/living expenses Wealth transfer The youngest of the Boomer generation (those born from ) are now in their 50s, with the oldest nearing 70. With this generation entering retirement, semi-retirement or thinking about retirement, RIAs polled said that their Boomeraged clients are requesting retirement planning more than any other generation. However, it s the younger generations that have different priorities. According to advisors, Gen X clients are asking advisors about how to finance their children s education more than planning for retirement. Gen Y also known as Millennials are more focused on buying a home, financing a child s education and tax planning than on retirement planning. Scottrade Advisor Services // Page 9 of 16

10 ROBO- ADVISORS Robo-advisors online advisory services that use analytical tools to create financial plans and investment portfolios for investors are becoming more common within the financial services industry. RIAs say these services will become more prevalent in the near future. Do you view robo-advisors as...? Complement business 40% Compete with business 23% Be irrelevant to business 20% Don t know yet 18% Scottrade Advisor Services // Page 10 of 16

11 Role of Robo-Advising Do you view robo-advisors as? $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 60% 40% 20% 0% Complement business Compete with business Irrelevant to business Don t know yet Despite the thought from a majority of RIAs that robo-advisors would reduce the number of prospects, there is a wide variation in the role of robo-advising. Advisors at small companies are more likely than others to view robo-advisors as competition while those at large companies are more likely to feel it will complement their offering to clients. Scottrade Advisor Services // Page 11 of 16

12 Advisor Expectations of Robo-Advising Do you see online management services like robo-advising becoming more prevalent in the next two years? In the next two years, do you think online management services like roboadvising will have a role in reducing the number of prospects for advisors? Nine in 10 (91%) RIAs polled said roboadvisors will become more prevalent in the next two years. 61 % say robo-advisors will reduce the number of prospects What do you expect for the future of robo-advising? 56 % 22 % 14 % 8 % It s a niche offering Eventually everyone will need to offer robo-advising services It will replace/compete with traditional advising It s a fad The majority of RIAs polled believe increased use of robo-advisors will have some adverse impact on offering traditional advice, however 56 percent stated the algorithmic-based investment advice has its own identity in the financial services space and will attract a certain type of client. Scottrade Advisor Services // Page 12 of 16

13 TECHNOLOGY CONCERNS Advisors say connectivity with other software platforms they routinely use is their biggest technological pain point. Smaller firms are more likely than larger firms to have concerns about technology. What concerns do you have, if any, about the use of technology at your firm? Integration of technology 49% Staying up-to-date 46% Clients not using/understanding it 45% High cost 41% Training 33% Staff not using/understanding it 24% Too complex 22% None of these 6% Other 5% Scottrade Advisor Services // Page 13 of 16

14 Technology Concerns What concerns do you have, if any, about the use of technology at your firm? $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 60% 40% 20% 0% Integration of technology Staying up-to-date Clients not using/ understanding it High cost Training Staff not using/ understanding it Too complex None of these Other Nearly 60 percent of advisors with $10 to $100 million in assets under management are concerned with integrating technology in their practice. Advisors with more than $500 million in assets under management stated that keeping the technology they currently use up to date is their biggest concern. Scottrade Advisor Services // Page 14 of 16

15 Use of Custodial Services How interested are you in receiving the following assistance from your custodians? Have you used any of the following from your custodians? Very/Somewhat Interested Use 100% 80% 60% 40% 20% 0% Separately managed accounts Model portfolios Third-party administration tools Trust services Rebalancing tools Integrated fee management tools Advisor planning tools Advisor planning tools (including customer relationship management software and financial planning software), rebalancing tools and integrated fee management tools are the top three custodian-provided back-office technology products used by advisors. However, use of custodian assistance does not always align with the high interest in their services, leaving room for growth in the RIA-custodian relationship. More than four in five (84 percent) RIAs are interested in advisor planning tools from their custodian but only around three in five (58 percent) have used them. Scottrade Advisor Services // Page 15 of 16

16 Prevention of Custodian Assistance What has prevented you from more fully utilizing assistance offered by your custodians? Please select all that apply. What benefits, if any, do you hope to get from technology? Can get help from other sources 42% Did not realize it was available 34% Do not need help from custodians 24% Do not think custodians can help 23% Too expensive 23% No time 21% 72 % say they hope to save time by using financial advisor software Lack of interest 17% Other 3% While most polled stated the reason they don t use their custodian for technology is because they can get it somewhere else, many others stated they haven t heard what their custodians have to provide in order to see if that technology is useful. Nearly one-third of advisors surveyed said they do not use custodians for back-office assistance because they didn t realize it was available. Scottrade Advisor Services // Page 16 of 16