Despite growing pessimism about market performance, almost every advisor in a recent survey believed that they will increase their assets under management over the next five years by an average of 41 percent.
Ninety-four percent of advisors said they expect to achieve that type of gowth, despite increased worries about market performance over the next six months, according to the Schwab Independent Outlook Study, a May survey of 924 independent advisors who custody assets with Schwab.
Schwab found that growth of the independent model is being driven by investors and advisors who generally had an increasing preference for fiduciary advice, and growth in platforms and systems offering an easier move to independence for practitioners.
Smaller firms in Schwab’s survey were more likely to expect significant growth than larger firms. When asked whether they expected 76 percent growth in new assets or more, 21 percent of firms with $500 million or less answered in the affirmative, compared with only 14 percent of firms larger than $500 million AUM.
Most of the growth anticipated by 84 percent of independent advisors is organic growth generated from existing clients bringing new assets to the advisor or new clients. In this year’s survey, advisors reported that 64 percent of their new clients come from the baby boomer generation, with 30 percent coming from Generation X.
Barriers to RIA growth include new sources of competition, difficulty in differentiation and increasing costs of doing business as an advisor, according to the survey.
Clients are significantly more concerned about market downturns and recessions than advisors are, the survey said. Roughly two-thirds of advisors and three-quarters of clients are concerned about the possibility of a prolonged drop in the value of major market indexes, and half of the advisors and two-thirds of clients reported being concerned about an extended economic downturn like a recession.
In fact, advisor optimism about market performance fell from September, the last time Schwab conducted its outlook poll. In May, 59 percent of advisors felt like the market would go up through the next six months, down from 70 percent in September.
Schwab reports that advisors are attempting to recession-proof their firms by streamlining operations, updating technology and increasing their sales and marketing efforts.
Advisors are also spending more time reassuring their clients. While 30 percent of advisors felt like conditions over the past six months would make it difficult for their clients to achieve their goals, 82 percent of advisors have felt necessary during the same period to reassure some or all of their clients that their goals were still in reach.