RIAs Are More Optimistic And Less Worried About Reducing Operating Expenses Hot

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RIAs are more optimistic, less concerned with technology, and less focused on returning operating expenses, according to a results of survey of 350 RIAs.


The survey, which was sponsored by TD Ameritrade Institutional and has a 5% margin of error, provides some useful insights. You can download the full survey, but here are some of the highlights.  




While 80% of RIAs said they foresaw obstacles to reaching their business goals in 2011, just 64% reported seeing obstacles to success in 2012. RIAs are more optimistic, perhaps because concerns about the threat of recession and the credit crisis have receded.


Interestingly, the number of advisors citing technology as an obstacle to success declined markedly, with 11% citing technology as a big obstacle to success versus 19% a year ago. It could be that TDAI’s focus on RIA technology has allayed advisor concerns.



Asked what they expect to do to overcome their biggest obstacles in 2012, upgrading technology was the No. 1 response selected by investment advisors. Though 40% of advisors polled said they planned to upgrade technology systems to overcome obstacles, that represented fewer advisors (52%) who a year ago said they were planning to upgrade technology.


Providing staff with skills to handle new challenges is also a popular idea with advisors. That’s not surprising. Training employees at RIAs, in my view, is a huge challenge for RIAs. Few resources are available to help RIAs and small businesses generally have difficulty devoting the time to create training programs for staff. Yet increasing the value of human capital is one of the key ways RIAs can become great at serving their clients. In my view, this is going to be a hot-button item for RIAs in the years ahead as more RIAs seek to serve high-net-worth individuals in order to differentiate themselves from automated advice solutions being rolled out by discount brokers to serve the mass affluent.


Amazingly, the number of advisors who say they are focused on reducing operating expenses declined from 30% to 17%. With the economic crisis fading from memory, advisors are surely feeling less pressure.


The top challenges RIAs cited are increased regulatory burdens (56%) and building investor confidence (47%). Meanwhile, increased competition is only cited by 15% of RIAs as a top challenge. Demonstrating value to clients for the fees they pay was cited a major challenge by 38% of RIAs.
Advisors were not specifically asked about the growing challenge of automated advice solutions from discount brokers and technology companies like Mint and Wealthfront. I believe these new competitors, which are not even on the radar screen for most advisors, will grow to be the biggest competitor to RIAs.

Half of the RIAs surveyed said they thought targeting a new niche was one of their top opportunities for 2012. In my experience, most advisors give niche marketing lip service but do not follow through on implementing programs targeting niches. In an age of social media and search engine optimization, it makes sense for RIAs to focus on target markets.



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