Scottrade Advisor Services Registered Investment Advisor Survey. Scottrade Advisor Services 1

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1 2016 Scottrade Advisor Services Registered Investment Advisor Survey Scottrade Advisor Services 1

2 Scottrade Advisor Services Registered Investment Advisor Survey Scottrade Advisor Services commissioned a survey of registered investment advisors (RIAs) to explore their attitudes and behaviors regarding technology, practice management, investing, the economy, finance and industry trends. The survey, undertaken by Harris Poll, was conducted among a sample of 303 RIAs in the U.S. age 18 and older and employed by a firm managing at least $10 million assets under management (AUM). By looking at their responses collectively, Scottrade Advisor Services is able to identify trends among RIAs. RIAs in this report represent three groups by assets under management: Small firms refer to those with $10 million to less than $100 million assets under management (n=101) Mid-sized firms refer to those with $100 million to less than $500 million assets under management (n=101) Large firms refer to those with $500 million or more assets under management (n=101) Scottrade Advisor Services 2

3 Key Topics in 2016 Technology 1. Keeping up with rapidly changing technology is a key advisor focus Technology frees up time and benefits clients, but many struggle to stay current Software use is widespread, but does not yet meet RIA needs. 9 Practice Management 1. RIAs today are most confident delivering traditional financial services The middle age client cohorts have a more diverse interest in financial offerings; Millennials and Seniors are more keenly focused Regulations present the biggest perceived obstacle standing in the way of successful growth In the near term, RIAs indicate they must seek to expand their offerings and further develop their value proposition. 20 Robo-advisors 1. Robo-advisors may be here to stay and allow RIAs to appeal to a whole new audience RIAs believe robo-advisors will transform the industry, including clients, fees and services. 25 Market Expectations and Trending Topics 1. RIAs offer a mixed and lukewarm perspective on the impact of outside forces Brexit is viewed more negatively in the short term and more positively in the long term. 30 Scottrade Advisor Services 3

4 Technology 1 Keeping up with rapidly changing technology is a key advisor focus In 2016, improving technology is the No. 1 investment priority for RIAs, slightly edging out growth and client service. Growth has actually declined significantly in importance over the past year, moving it into second place behind technology. Notably, technology is not quite as important to the smaller firms, where business growth remains the most crucial way to invest extra dollars. Scottrade Advisor Services 4

5 [Figure 1] When asked where they would spend an extra dollar if they had it, more than a quarter of RIAs (27 percent) would spend it on technology. Technology is the area chosen most often by RIAs overall, ahead of growth (24 percent), client service (21 percent), employee/talent management (12 percent), operations/processes (10 percent), and compliance/ regulation (7 percent). RIAs at small firms are more focused on growth than technology (35 percent vs. 18 percent), but technology is clearly a priority for RIAs at mid-sized (34 percent technology vs. 17 percent growth) and large firms (29 percent technology vs. 20 percent growth). Figure 1 If you had an extra dollar to invest into your business, into which one of the following areas would you allocate that dollar? Technology Growth Client Service Employee/Talent Management Operations/ Processes Compliance/ Regulation Total % 24 % 21 % 12 % 10 % 7 % Total % 38 % 12 % 13 % 8 % 4 % Technology Growth Client Service Employee/Talent Management Operations/Processes Compliance/Regulation Key: $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 5 Technology: Keeping up with rapidly changing technology is a key advisor focus. 5

6 Technology 2 Technology frees up time and benefits clients, but many struggle to stay current The perceived benefits of improving technology are substantial half of RIAs say it enhances the customer experience, saves time and saves money. But that said, the use of technology does not come without its challenges for RIAs. The main concerns (expressed by at least four in 10 RIAs) are: staying up-to-date, affording the high cost and integrating the technology seamlessly. Larger firms are especially worried about staying current with technology and providing the necessary training to staff. Scottrade Advisor Services 6

7 [Figure 2] Improving client service (61 percent) is the most commonly selected benefit RIAs hope to gain from technology at their firm, and many also see technology as a way to provide convenient access (45 percent) and improved solutions/ offerings (43 percent) to clients. The majority of RIAs also feel technology can help save time and money (59 percent and 50 percent, respectively). Figure 2 What benefits, if any, do you hope to get from technology at your firm? Please select all that apply. Improve client service Save time Save money Totals 61 % 59 % 50 % Standardize processes 47 % Convenient access for clients 45 % Improve solutions/offerings for clients 43 % Improve marketing 39 % Attract younger clients 38 % None of these 1 % Key: $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 7 Technology: Technology frees up time and benefits clients, but many struggle to stay current. 7

8 [Figure 3] Staying up-to-date (47 percent), high cost (43 percent), and integration of technology (42 percent) are the three most commonly selected concerns about the use of technology at their firm. Figure 3 What concerns do you have, if any, about the use of technology at your firm? Please select all that apply. Staying up-to-date Totals 47 % High cost 43 % Integration of technology 42 % Training 35 % Clients not using/understanding it 32 % Me/My firm not using/understanding it 23 % Too complex 22 % None of these 8 % Key: $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 8 Technology: Technology frees up time and benefits clients, but many struggle to stay current. 8

9 Technology 3 Software use is widespread, but does not yet meet RIA needs Today, the majority of RIAs use a wide variety of financial management software to support their services (for example, financial planning, CRM or portfolio management). But among those who use software in their firm for efficiency, providing solutions to clients, improving client service or any other benefits they find, many RIAs plan on making upgrades or enhancements on the software they already use. Scottrade Advisor Services 9

10 [Figure 4] While most RIAs don t plan to change their software provider in the next year, many plan to make upgrades or enhancements. Three in 10 RIAs say they plan to update or enhance the CRM (32 percent), financial planning (32 percent), portfolio management (31 percent), risk management (31 percent) and tax optimization (30 percent) software that they are using within the next 12 months. Figure 4 Which of the following software products do you use or plan to use in the next 12 months? Customer relationship management (CRM) software Financial planning software Portfolio management software Currently Use and Plan to Update/Enhance in the Next 12 Months Totals 32 % 32 % 31 % Risk management software 31 % Tax optimizing software 30 % Social Security management or analyzer software 28 % Account aggregation software 27 % Document management software 27 % Rebalancing software 27 % Key: $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 10 Technology: Software use is widespread, but does not yet meet RIA needs. 10

11 Figure 4a Which of the following software products do you use or plan to use in the next 12 months? Financial planning software Customer relationship management (CRM) software Portfolio management software Currently use (NET) 85 % 82 % 80 % Currently use and DO NOT plan to update, enhance, or switch what we currently use 35 % 36 % 31 % Currently use and DO plan to update or enhance what we currently use 32 % 32 % 31 % Currently use and DO plan to switch to another program/provider in the next 12 months 18 % 14 % 17 % Document management software Account aggregation software Social Security management or analyzer software Currently use (NET) 75 % 73 % 71 % Currently use and DO NOT plan to update, enhance, or switch what we currently use 31 % 32 % 29 % Currently use and DO plan to update or enhance what we currently use 27 % 27 % 28 % Currently use and DO plan to switch to another program/provider in the next 12 months 17 % 14 % 14 % Rebalancing software Risk management software Tax optimizing software Currently use (NET) 68 % 63 % 63 % Currently use and DO NOT plan to update, enhance, or switch what we currently use 25 % 20 % 19 % Currently use and DO plan to update or enhance what we currently use 27 % 31 % 30 % Currently use and DO plan to switch to another program/provider in the next 12 months 16 % 12 % 14 % Key: $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 11 Technology: Software use is widespread, but does not yet meet RIA needs. 11

12 Practice Management 1 RIAs today are most confident delivering traditional financial services While RIAs are generally confident in their ability to provide a wide mix of support to their clients, they remain the most comfortable offering traditional wealth management services such as retirement planning (68 percent very confident) and asset management (55 percent very confident protecting and 59 percent very confident growing assets). By contrast, only half or fewer express a great deal of confidence delivering less conventional services like tax planning or healthcare planning. Even with the more traditional offerings, there has been a steep decline in confidence over the past year with providing both high-quality retirement services and asset growth. Scottrade Advisor Services 12

13 [Figure 5] While RIAs are generally confident in their ability to provide all types of services to their clients, retirement planning (68 percent), growing assets (59 percent), wealth transfer (56 percent) and protecting assets (55 percent) are the areas where most RIAs are most likely to be very confident in their ability to service clients. In contrast, they are less likely to feel very confident about their ability to help with planning for healthcare (40 percent), financing parent s healthcare/living expenses (40 percent) and tax planning (50 percent). Figure 5 How confident are you in your ability to provide the following services to your clients? Very Confident in providing Retirement planning Growing assets Wealth transfer Protecting assets $10M to under $100M AUM 58 % 52 % 53 % 67 % $100M to under $500M AUM 52 % 48 % 67 % 60 % $500M+ AUM 54 % 69 % 66 % 63 % Total % 76 % 59 % 69 % 56 % 56 % 55 % 59 % Financing a home 45 % 57 % 55 % 52 % 53 % Estate planning 48 % 57 % 51 % 52 % 47 % Financing children's education 46 % 56 % 53 % 52 % 58 % Tax planning 40 % 56 % 52 % 50 % 45 % Financing parent's healthcare/living expenses 39 % 37 % 45 % 40 % 39 % Planning for healthcare as they age 38 % 37 % 46 % 40 % 39 % 13 Practice Management: RIAs today are most confident delivering traditional financial services. 13

14 Practice Management 2 The middle age client cohorts have a more diverse interest in financial offerings; Millennials and Seniors are more keenly focused Not surprisingly, RIAs say that life stage matters a lot in informing where clients most need assistance and which services are most appropriate. Millennial and Gen X clients are not altogether different and express similar principal priorities. Millennials emphasize most strongly, by far, financing a home and growing their assets, while Gen Xers care deeply about both of these issues, but also highlight financing their children s education, retirement planning and tax planning. Naturally, Baby Boomers appear to be far more concerned with services that will support them as they age, including retirement planning, healthcare for their older years, protecting their assets, and tax and estate planning. Seniors reflect a similar but more sharply focused set of priorities with three dominant concerns: protecting their assets; estate planning and wealth transfer. Scottrade Advisor Services 14

15 [Figure 6] Millennials and Gen X clients are most focused on asset growth (51 percent and 69 percent, respectively) and financing major purchases such as a home (52 percent and 61 percent) or children s education (38 percent and 66 percent). Baby Boomers are most focused on planning for retirement (71 percent), long-term healthcare (68 percent) and asset protection (65 percent). Figure 6 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. 8 % Financing children's Financing a home Growing assets education Tax planning 27 % 52 % 61 % 26 % 51 % 69 % 60 % 10 % 38 % 66 % 33 % 34 % 60 % 38 % 63 % Seniors are more focused on wealth transfer (59 percent), asset protection (57 percent) and estate planning (52 percent). Retirement planning 23 % 55 % Financing parent's healthcare/living expenses Protecting assets Estate planning 18 % 42 % 17 % 44 % 15 % 29 % 71 % 52 % 65 % 64 % 34 % 16 % 57 % 52 % Wealth transfer Planning for healthcare as they age Other None of these 14 % 12 % 32 % 16 % 9 % 21 % 52 % 13 % 3 % 68 % 17 % 3 % 59 % 43 % 12 % 4 % Key: Millennials (18 34) Gen X (35 49) Baby Boomers (50 69) Seniors (70+) 15 Practice Management: The middle age client cohorts have a more diverse interest in financial offerings; Millennials and Seniors are more keenly focused. 15

16 Figure 6a 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. Millennials (18 34) Gen X (35 49) Baby Boomers (50 69) Seniors (70+) Financing a home 52 % 52 % Growing assets 69 % 77 % Retirement planning 71 % 77 % Wealth transfer 59 % 60 % Growing assets 51 % 60 % Financing children's education 66 % 68 % Planning for healthcare as they age 68 % 67 % Protecting assets 57 % 61 % Financing children's education Financing a home Protecting assets Estate planning 38 % 32 % 61 % 54 % 65 % 65 % 52 % 58 % Tax planning 34 % 28 % Tax planning 60 % 57 % Estate planning 64 % 66 % Planning for healthcare as they age 43 % 44 % Retirement planning 23 % 26 % Retirement planning 55 % 57 % Tax planning 63 % 66 % Tax planning 38 % 43 % Financing parent's healthcare/living expenses Protecting assets Growing assets Retirement planning 18 % 12 % 44 % 36 % 60 % 65 % 34 % 40 % Protecting assets Financing parent's healthcare/living expenses Financing parent's healthcare/living expenses Growing assets 17 % 20 % Estate planning 15 % 12 % 42 % 34 % Planning for healthcare as they age 32 % 26 % Wealth transfer 52 % 51 % 52 % 56 % 26 % 27 % Financing parent's healthcare/living expenses 16 % 12 % Wealth transfer Estate planning Financing children's education Financing children's education 9 % 14 % Planning for healthcare as they age 29 % 30 % Wealth transfer 33 % 38 % Financing a home 10 % 9 % Financing a home 8 % Other 16 % 8 % 12 % 21 % 17 % Other 13 % 11 % 27 % 24 % Other 17 % 12 % 8 % 8 % Other 12 % 8 % None of these 9 % 11 % None of these 3 % 3 % None of these 3 % 2 % None of these 4 % 5 % Key: 2016 Total 2015 Total 16 Practice Management: The middle age client cohorts have a more diverse interest in financial offerings; Millennials and Seniors are more keenly focused. 16

17 Practice Management 3 Regulations present the biggest perceived obstacle standing in the way of successful growth Looking at the next three-to-five years, RIAs see government/ industry regulation as the top barrier to growth, followed by client acquisition. But that said, firm size appears to be a major driver of which obstacles RIAs expect to face in the near-term future. Client acquisition is by far the No. 1 challenge that RIAs at small firms foresee; while mid-sized firms are more concerned with adjusting to new industry regulations and larger firms with new government regulations. In addition, hiring staff and adapting to new technology are much more significant issues to mid-sized and large firms than smaller ones. Notably, while government regulations are a key concern moving into the future, RIAs today are relatively optimistic about the Department of Labor s Fiduciary Rule for retirement accounts and are more than twice as likely to view this rule as a positive (49 percent) rather than a negative (23 percent) for their practice. Scottrade Advisor Services 17

18 [Figure 7] RIAs cite adapting to new government regulations (35 percent), client acquisition (34 percent), and adapting to new industry regulations (30 percent) as the biggest challenges inhibiting the growth of their firm in the next three-to-five years, but firm size dictates the primary challenge. Client acquisition is by far the biggest challenge for RIAs at small firms, cited by nearly half of these RIAs (45 percent). Government regulations are overwhelmingly the biggest challenge for RIAs at large firms, cited by nearly half of these RIAs (46 percent). Industry regulations are cited as a challenge to growth by the largest number of RIAs at mid-sized firms (38 percent). Additionally, RIAs at large and mid-sized firms are more likely than those at smaller firms to name hiring the right staff (34 percent, 32 percent and 19 percent, respectively) and adapting to new technology (30 percent, 27 percent and 15 percent) as challenges to growth. Figure 7 Which of the following are the biggest challenges inhibiting the growth of your firm in the next 3-5 years? Please select all that apply. Adapting to new government regulations Client acquisition Adapting to new industry regulations Managing assets under more frequent market volatility Hiring the right staff Differentiating myself from other advisors Increasing my assets under management Rising expenses Growing my practice under continued market volatility Managing market changes Adapting to new technology Adapting to changing client expectations Client retention Being able to return on a client's stated objectives Developing a value proposition that differentiates my practice Interest rate changes by the Federal Reserve Adapting to robo-advisors Maintaining positive returns with the current set of investment products Adapting to new investment products Finding more effective products to offer clients Finding more niche investment products to meet clients' investment preferences (e.g., socially responsible investments, products that avoid ''sin'' industries, etc.) Adapting to the outcome of the U.S. presidential election Making enough money to pay staff Custodial requirements Other None/No challenges 2 % 1 % 10 % 13 % 19 % 19 % 18 % 18 % 18 % 17 % 17 % 16 % 15 % 35 % 34 % 30 % 29 % 28 % 28 % 28 % 26 % 25 % 24 % 24 % 23 % 22 % 18 Practice Management: Regulations present the biggest perceived obstacle standing in the way of successful growth. 18

19 [Figure 8] About half of RIAs (49 percent) expect the Department of Labor s Fiduciary Rule for retirement accounts to have a positive impact on their practice in the next three-to-five years, while 23 percent expect a negative impact and 23 percent expect no impact. Figure 8 Moving on to the Department of Labor Fiduciary Rule for retirement accounts, what kind of impact do you expect it to have on your practice in the next 3-5 years? Positive (NET) Somewhat positive impact Total 49 % 29 % Very positive impact 20 % No impact 23 % Negative (NET) 23 % Very negative impact 4 % Somewhat negative impact 19 % Not sure 4 % Key: $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 19 Practice Management: Regulations present the biggest perceived obstacle standing in the way of successful growth. 19

20 Practice Management 4 In the near term, RIAs indicate they must seek to expand their offerings and further develop their value proposition When reflecting on the same time frame (three-to-five years), RIAs do not express one uniform strategy to evolve their business, confront their challenges, and stay competitive. The primary tactics that rise to the top are developing/improving their value proposition and expanding their products/services (especially among larger firms). The staffing plan also appears to be a key focus of mid-sized and large firms, either increasing staff (for both cohorts) or delegating staff responsibilities differently (for mid-sized firms). Of note, while developing a value proposition is a key priority going forward, nearly all RIAs actually have some sort of value proposition in place at their practice today, and this value proposition is typically formal and well-defined, especially at the larger firms. Scottrade Advisor Services 20

21 [Figure 9] Two-thirds (67 percent) of RIAs have a formal, written value proposition for their practice and another 22 percent have an unwritten value proposition. Figure 9 Do you have a formal, written value proposition for your practice? A formal, written value proposition increases with firm size, but only about one in 10 (11 percent) RIAs at firms of any size do not have any sort of value proposition in place. Yes $10M to under $100M AUM 56 % $100M to under $500M AUM 67 % $500M+ AUM 76 % Total 67 % [Figure 10] When asked how they plan to evolve their business in the next three-to-five years to stay competitive, more than half (53 percent) of RIAs say they plan to develop or improve their value proposition. This is followed by adding new products/services (51 percent) and moving more tasks online (46 percent). No, but we have an unwritten value proposition 31 % 21 % 16 % 22 % No, we do not have a defined value proposition 13 % 12 % 8 % 11 % 21 Practice Management: In the near term, RIAs indicate they must seek to expand their offerings and further develop their value proposition. 21

22 Figure 10 How are you planning to evolve your business in the next 3-5 years to stay competitive? Please select all that apply. Totals Developing or improving value proposition Adding new products/services Moving more tasks online Offering more investment products with lower fees Increasing staff Delegating more tasks to other staff within the practice Outsourcing more tasks Incorporating robo-advising Moving practice to a lower-cost area Reducing staff Not sure 53 % 51 % 46 % 43 % 40 % 37 % 27 % 22 % 14 % 8 % 6 % Key: $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 22 Practice Management: In the near term, RIAs indicate they must seek to expand their offerings and further develop their value proposition. 22

23 Robo-advisors 1 Robo-advisors may be here to stay and allow RIAs to appeal to a whole new audience In 2016, robo-advisors appear to have a more pervasive and established role within the investment industry. More than half of RIAs either currently use a robo-advisor today (29 percent) or plan to use one in the next two years (26 percent). Many see the benefits of integrating robo-advisors into their firm, most of all the ability to lower fees and attract a different set of investing clients (including younger investors and investors with fewer assets). But notably, those at smaller firms have fewer plans to take advantage of a robo-advisor in the future than those in mid-sized firms. Scottrade Advisor Services 23

24 [Figure 11] Nearly three in 10 (29 percent) RIAs use a robo-advisor at their firm, and another quarter (26 percent) plan to do so in the next two years. [Figure 12] The majority of RIAs feel robo-advising is attractive to younger investors (65 percent) and offers a low-cost option (57 percent). Almost half (49 percent) feel it enables them to service lower asset investors. Fewer RIAs in 2016 feel roboadvising allows them to service lower-asset clients compared with the 2015 survey (59 percent 2015 vs. 49 percent 2016). Figure 11 Have you adopted a robo-advisor at your firm? Does your firm plan on adopting a robo-advisor in the next two years? $10M to under $100M AUM $100M to under $500M AUM 31 % $500M+ AUM 27 % 30 % 19 % 26 % Figure 12 What do you think are the benefits/opportunities of robo-advising? Please select all that apply. 34 % 54 % 36 % 45 % Total Key: Yes No, but plan to do so in the next two years No, and do not plan to do so in the next two years 45 % 29 % 26 % $10M to under $100M AUM $100M to under $500M AUM Total $500M+ AUM Cited Benefit (NET) 91 % 98 % 96 % 95 % 95 % Attractive to younger investors 54 % 72 % 67 % 65 % 67 % Low-cost option 55 % 61 % 55 % 57 % 61 % Able to service investors wth lower asset levels 41 % 58 % 47 % 49 % 59 % Saves me time to work on client relationships 27 % 46 % 46 % 39 % 36 % Can be part of an overall investment approach 26 % 47 % 45 % 39 % 38 % I m not sure 6 % 3 % 3 % 3 % I don t believe there are any benefits/ opportunities with robo-advising 9 % 2 % 4 % 5 % 5 % 24 Robo-advisors: RIAs believe robo-advisors may be here to stay and allow RIAs to appeal to a whole new audience. 24

25 Robo-advisors 2 RIAs believe roboadvisors will transform the industry, including clients, fees and services Nearly all RIAs express some concern that the move to incorporate robo-advisors will have a noticeable impact on the overall industry, and more than nine in 10 share at least some concerns about robo-advisors for their own practice, in particular the lack of any human contact or personal interaction. Today, RIAs are not quite as concerned that robo-advisors will be simplistic or will commoditize their services; but concern has risen about how robo-advisors will shape the client landscape and potentially lead to a reduction in their prospects. About four in 10 foresee a greater need to target younger investors and adjust the way they interact with clients. Moreover, about one-third to one-half believe that robo-advisors will force the industry to alter the fees they provide, either lowering their fees or causing their fees to become more transparent. Scottrade Advisor Services 25

26 [Figure 13] RIAs think the presence of robo-advisors will put pressure on the industry to lower fees (46 percent) and to be more transparent about fees (38 percent). About four in 10 feel robo-advisors will put a greater focus on younger investors (42 percent) and people will expect new ways to interact with their advisor (38 percent). RIAs expressed many of the same concerns in the 2015 survey, although there has been a slight increase in the percent of RIAs who feel the presence of robo-advisors will put pressure on the industry to be more transparent about fees (32 percent 2015 vs. 38 percent 2016). [Figure 14] Additionally, more than two-thirds of RIAs (68 percent) feel robo-advisors will reduce the number of prospects for advisors, up slightly from 61 percent who felt the same in Figure 13 How do you think the presence of robo-advisors will change the field of wealth management? Please select all that apply. Figure 14 In the next two years, do you think online management services like robo-advising will have a role in reducing the number of prospects for advisors? $10M to under $100M AUM Totals $100M to under $500M AUM $500M+ AUM Will have a change (NET) 90 % 90 % 92 % It puts pressure on the industry to lower fees It will put pressure to appeal to younger investors Investors will expect newer ways of interacting with advisors Investors will expect a more transparent fee structure Investors will expect more details around decisions It will not change anything 66 % 65 % $10M to under $100M AUM 72 % 34 % 28 % 35 % $100M to under $500M AUM 50 % 41 % 48 % 40 % 43 % 43 % 33 % 45 % 37 % 37 % 45 % 33 % 20 % 21 % 27 % 10 % 10 % 8 % 68 % 2016 Total $500M+ AUM % 61 % 91 % 46 % 42 % 38 % 38 % 22 % 9 % % 91 % 51 % 45 % 41 % 32 % 20 % 9 % Key: Yes No 26 Robo-advisors: Robo-advisors will transform the industry, including clients, fees and services. 26

27 [Figure 15] More than two-thirds of RIAs (68 percent) express concern about a lack of human interaction with robo-advising, and about two in five worry about a lack of service and lack of knowledge transfer (43 percent and 37 percent, respectively). Compared with the survey conducted in 2015, fewer RIAs are concerned that roboadvising is too simplistic (42 percent 2015 vs. 34 percent 2016) or commoditizes their services (43 percent 2015 vs. 31 percent 2016), while more worry about high fees relative to the scope of services (17 percent 2015 vs. 23 percent 2016). Figure 15 What are your concerns with robo-advising? Please select all that apply. Has concern (NET) Lack of human interaction Lack of service Lack of knowledge transfer Too simplistic Commoditizes our services High fees relative to scope of service $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 94 % 94 % 92 % 67 % 64 % 71 % 44 % 43 % 43 % 37 % 38 % 37 % 37 % 31 % 36 % 32 % 37 % 26 % 20 % 24 % 27 % Total % 93 % 68 % 69 % 43 % 48 % 37 % 41 % 34 % 42 % 31 % 43 % 23 % 17 % I don t have any concerns with robo-advising 5 % 3 % 7 % 5 % 5 % 27 Robo-advisors: Robo-advisors will transform the industry, including clients, fees and services. 27

28 Market Expectations/Trending Topics 1 RIAs offer a mixed and lukewarm perspective on the impact of outside forces RIAs do not have a uniform perspective on how macro-level forces (i.e., the stock market and the economy) will impact their business, offering a nearly even split of cautious optimism or pessimism. Depending on the measure, the majority swings one way or the other, but the overall optimistic tone is consistently restrained by corresponding negative sentiment, rather than being overwhelming and confident. The vast majority believe that the stock market will be volatile in the coming year but imagine that equity markets will generally trend upward. That said, most RIAs don t feel like this growth will be enough and nearly half are worried (though more than half are not) about their ability to effectively manage their clients assets. Coinciding with the perceived ups and downs of the market, the majority of RIAs anticipate that changes to the economy will be good for their practice, but again a (slightly smaller) majority also see the economy as doing harm, alongside or instead of the good. Notably, the views of the investing public mirror that of the RIAs almost exactly, and relative size of the practice seems to have little, if any, influence on perspective. Scottrade Advisor Services 28

29 [Figure 16] More than eight in 10 (83 percent) RIAs expect the stock market will be volatile over the next 12 months, and about two in five (44 percent) are concerned that they will not be able to manage client assets effectively during market volatility. About three-quarters of RIAs (76 percent) expect there will be changes to the economy that will help their practice, but more than half (55 percent) also expect there will be changes that will hurt their practice. More than eight in 10 (83 percent) RIAs are confident equity markets will grow, but about three in five (59 percent) are anxious that the market will not grow enough. [Figure 17] In a recent Scottrade survey among investors, 41 percent worry that their portfolio will not be able to withstand major changes in the economy. A relatively similar 70 percent of investors expect changes to the economy that will help their portfolio, and 59 percent expect changes to the economy will hurt their portfolio. Figure 16 How much do you agree or disagree with the following statements about the stock market in the next 12 months? 41 % 70 % 59 % I am worried that my portfolio will not be able to withstand major changes in the economy Agree I expect the stock market will be volatile I am confident equity markets will grow I expect there will be changes to the economy that will help my practice I am anxious that the market will not grow enough I expect there will be changes to the economy that will hurt my practice I am concerned that I will not be able to manage client assets effectively during market volatility $10M to under $100M AUM 46 % Figure 17 (From investors polled in Scottrade s Financial Behavior Study) How much do you agree or disagree with the following statements about the impact of the economy on your investment portfolio over the next 12 months? 84 % I expect there will be changes to the economy that will help my portfolio $100M to under $500M AUM 78 % 85 % 72 % 73 % $500M+ AUM 84 % 81 % 65 % 57 % 55 % 57 % 56 % 52 % 45 % 42 % 86 % 83 % I expect there will be changes to the economy that will hurt my portfolio Total 83 % 83 % 76 % 59 % 55 % 44 % 29 Market Expectations and Trending Topics: RIAs offer a mixed and lukewarm perspective on the impact of outside forces. 29

30 Market Expectations/Trending Topics 2 Brexit is viewed more negatively in the short term and more positively in the long term When British citizens voted to leave the European Union in 2016 (also known as Brexit), economists took sides about the effect the referendum would have for global markets. More than six in 10 RIAs think Brexit will have at least some impact on their business. For the upcoming year, RIAs appear slightly more pessimistic, but when looking farther out into the future (five years from now), the tone switches and RIAs are more than twice as likely to feel the impact will be positive. Scottrade Advisor Services 30

31 [Figure 18] With regard to Brexit (the departure of the United Kingdom from the European Union), RIAs are more likely to think it will have a negative impact on their business than positive in the next 12 months (35 percent negative, 29 percent positive). Looking out five years from now, they are more than twice as likely to feel the impact of Brexit will be positive for their business than negative (39 percent positive, 17 percent negative). Figure 18 What do you think will be the impact of Brexit (the departure of the United Kingdom from the European Union) on the U.S. economy? In the next 12 months Total Five years from now Total Positive (NET) Very positive impact Somewhat positive impact 29 % 15 % 15 % Positive (NET) Very positive impact Somewhat positive impact 39 % 17 % 23 % About a third don t expect Brexit will impact their business in the short or long term (No impact: 33 percent in the next 12 months, 39 percent five years from now). No impact Negative (NET) 33 % 35 % No impact Negative (NET) 39 % 17 % Very negative impact 3 % Very negative impact 2 % Somewhat negative impact 32 % Somewhat negative impact 15 % Not sure 2 % Not sure 4 % Key: $10M to under $100M AUM $100M to under $500M AUM $500M+ AUM 31 Market Expectations and Trending Topics: The Brexit is viewed more negatively in the short term and more positively in the long term. 31

32 The 2016 Scottrade Advisor Services RIA Study was conducted July 25 August 9, 2016, in collaboration with Harris Poll, an independent third-party research firm not affiliated with Scottrade Financial Services, Inc., its business units or subsidiaries. The 303 Registered Investment Advisors were age 18 and older and were employed at firms managing at least $10 million in assets under management. $10M to under $100M AUM = 101, $100M to under $500M AUM = 101, $500M+ AUM = 101 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 business unit 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.