What’s next for the fiduciary advice model?

I can’t think of a sector more exciting than the registered investment advisor (RIA) profession. The rapid, ongoing growth of the RIA industry translates into a quick pace of evolution. We see it on many fronts including the expanded ways advisors take the path to independence, how talent shapes today’s firms, the range and combinations of products and services offered, and the growing personalization of the client experience.

This pace of change means there’s always something new for independent advisors to learn about or leverage that can help them grow their business and offer more value to their end clients. And that’s why we’re collectively “all in”—better outcomes for investors.

Keeping your finger on the pulse of this dynamic industry requires being plugged into insights that can simultaneously clarify what’s happening today and give a glimpse of what's around the corner. 

Here at Schwab, we have a unique vantage point from which to share insights—it’s based on what we see and learn from serving more than 15,000 advisors every day.

Here are some of the trends we’re seeing:

Whether they’re one of the 15,000 advisors that custody with us at Schwab or not, RIAs have captured $9 trillion of the $33 trillion in managed assets currently in the U.S. That’s a testament to the fiduciary model. Investors want advice that is in their best interest, and they are getting increasingly familiar with the independent advisor model as a choice. At the same time, I think we can agree that the $24 trillion still on the table leaves a huge opportunity for RIAs of all kinds to provide differentiated services to their clients and win business away from the wirehouses and other sectors, all without crowding one another. The growth and success of independent advisors will continue because of who they are and how they serve. It is their secret sauce.

While new RIA firms are being established all the time, another trend of note is the leap in the number of advisors going independent by joining an existing independent firm. In fact, we’re seeing twice as many joins as starts. Many advisors are seeing the value of the tuck-in model.

Joining an existing firm can alleviate a potential point of friction for an RIA. Many want to focus their efforts on working with their clients' without being pulled away to handle things like compliance and the tech stack. That explains the allure of joining an existing firm as one of the many ways to move to independence.

One of the beautiful things about the world of independence for advisors is that there’s flexibility for them to create their own business model. This is matched by the demand from clients for services that differ from the cookie-cutter approaches they’ve traditionally been inundated with in the past, resulting in a huge and varied opportunity for RIAs.

Some advisors are choosing to differentiate by diversifying what they offer clients. For example, nearly 40% of advisors now custody alternatives at Schwab, and investors' interest in alts is at a high point today.

Others stand out by specializing and narrowing the range of clients they are geared to serve. For example, we are seeing many advisors choosing to expand into the Ultra High Net Worth market. Multi-family office firms are prevalent now and we see more single-family office firms than we used to.

As the saying goes, if you’ve met one RIA, you’ve met one RIA. They are unique in so many ways but aligned in what matters most, and that’s putting clients first.  

No matter what path advisors take to reach independence, they have two things in common: they have a passion for doing right by their clients and they want to grow their businesses. That’s why we continue to see outsourcing as a strong enabler for supported independence. 

Advisors want to spend less time on the back office and more time with clients and prospects, so they’re being mindful of their time allocation. By accessing consulting offerings and using partners to tackle infrastructure, technology, and practice management challenges, advisors can spend more time doing what they do best—and what they enjoy most—serving clients.

We expect more advisors to become independent and more growth for those who already are. And the return to organic growth is here. RIAs are again focused on what made them—attracting and retaining new business one new client at a time. 

Firms of all sizes are embracing the appeal of independence by doubling-down on client relationships and focusing on growth strategies; a winning combination if you ask me!

Referrals continue to be the backbone of organic growth, accounting for 67% of new clients and new client assets in 2023. Firms are creating referral networks with clients, business partners and their centers of influence to share their stories, discuss challenges, and identify solutions which prompts action.

Growth doesn’t always come from something new. Another frontrunner of organic growth is client retention, the ultimate testament to the trusted relationships RIAs have built and the value they continue to deliver. Client retention rates across our advisor client base have held steady at 97% for the last decade. 

From my perspective, the most wonderful thing that will result from this is more investors experiencing better outcomes. 

We’re grateful to have a front-row seat in the RIA industry, and we’re excited to continue helping our clients of all sizes as the next decade of success unfolds.