Leaders look forward together at the future of independent advisors

December 7, 2022 Sean Carey
Some of the opportunities and challenges that will shape the Registered Investment Advisor industry over the next five years.

“I can spend the next 30 years helping people achieve their dreams and their goals.”

That’s what Walt Bettinger’s son told him about why he decided to take a job at an independent Registered Investment Advisor (RIA) firm instead of a role he was offered with a prestigious packaged goods company that would have paid significantly more. Walt, the CEO and Co-Chairman of Charles Schwab, shared this story with over 5,000 attendees at Schwab’s IMPACT conference this year in Denver. IMPACT is the industry’s largest gathering of RIAs and the vendors and providers that support them.

It’s one of many reasons why Schwab leaders view the future of the RIA model with optimism. Bernie Clark, head of Schwab Advisor Services, called out growth as a common theme highlighting:

  • Organic growth in number of clients hit a 5-year high in 2021, according to Schwab’s annual RIA Benchmarking Survey
  • Inorganic growth continued to surge with a record number of mergers and acquisitions inked in the 3rd quarter of 2022
  • IMPACT itself has grown, hitting a record number of attendees this year

Walt and Bernie both also attributed the success of the independent advice model in large part to the fact that when serving as a fiduciary, RIAs must act in the best interests of their clients. It should be no surprise that a client-first approach would continue to grow in popularity with investors, especially during challenging economic headwinds.

It was against this backdrop of positive factors that leaders zoomed in to look at more specific recommendations and predictions for the future of the RIA space.

On personalization: “We’ve got to remove friction. And cost is friction.”

Personalized investing was a trend that stood out from last year’s IMPACT event, and the discussion continued in a big way for 2022.

In fact, Walt went so far as to say, “I don’t think we’re even in the 1st inning yet.”

While technology remains an important enabler for adoption of personalized investing, pricing dominated the discussion as the missing ingredient for further success.

“What’s lagging is cost. We need to do more as an industry to get that cost down to closer to an ETF or index fund or mutual fund level,” Walt shared, spurring Bernie’s comment about cost being a form of friction getting in the way of personalization for advisors and investors alike.

On lending: A way to “avoid introducing a new relationship to your client that you may not want.”

When Rick Wurster, President of Charles Schwab, joined Bernie on Day 2 of IMPACT, they both emphasized how important it is to the entire independent advisory ecosystem to enhance our lending solutions.

The biggest advantage advisors have is their ability to forge deep relationships with their clients.

When a client brings a lending need to the table, that relationship can be disrupted because the advisor is often forced to introduce an external relationship into the client dynamic. That external lender may not have a compatible philosophy with the advisor.

Even worse, according to Bernie, the lender may be a competitor who might “have their own wealth management offering and attempt to bring the client’s assets into their shop.”

Rick believes that custody providers can help address this challenge for advisors in two ways. The first is through ease, meaning reducing the steps needed and time required to execute on existing loan solutions like pledged asset lines and mortgages. He cited Schwab’s near-term focus on both process and technology improvements to help achieve greater ease.

The second is to explore more esoteric options for advisors and their clients over the longer term. That could take many forms, such as unsecured loans or loans against more non-traditional types of collateral.

On talent: “People are the oxygen that fuels all our success.”

In his opening address, Schwab Advisor Services COO Jon Beatty threw out a big figure—70,000.

That’s how many new employees the RIA industry will need to hire over the next five years to keep pace with its collective growth, according to Schwab research.

Jon noted that advisors see the need as well, citing the fact that hiring new talent surpassed even client referrals as the number one strategic priority of firms for “the first time ever in the history of our annual Benchmarking Survey.”

The good news is the industry is addressing the issue and making inroads. Jon called out the work being done at Schwab with internships, scholarships, and university grants to elevate awareness and access to the financial planning profession. It’s key, Jon said, to “draw more and more diverse talent into the industry, and to help RIAs to create the right conditions for success” once they were hired.

Walt brought up his son’s decision to join an RIA as a proof point for them being “really well positioned to attract AND retain young talent.”

When asked what needed to be done to capitalize on that strong position, Bernie didn’t hesitate.

“We need to tell our story. We need to make sure that the next generation of talent understands the difference between the RIA model and being a fiduciary versus other models they may be familiar with. As they understand the difference between the two, they’re going to gravitate towards the RIA model.”