Imagining the future: Exploring social and technology trends reshaping the RIA industry

Are you spending enough time preparing your business for the future? Research shows you might not be, said Neesha Hathi, Senior Vice President of Advisor Services at Charles Schwab & Co., Inc.
Schwab’s adviser research shows “you spend a lot of your time on the operations of your business, on the serving of clients, and maybe not as much time as you believe you should on preparing for the future — thinking about your strategy, imagining where you want your firm to go,” Ms. Hathi said during IMPACT 2014.
Speaking at a session entitled, “Imagining the Future: Exploring Social and Technology Trends Reshaping the RIA Industry,” Ms. Hathi urged advisers to make such preparations a priority and to focus more on “driving your business forward.” She said several converging technological, social and demographic trends demand advisers’ attention because they will have a significant impact on advisers and the wealth management business.
In describing today’s major technological trends, Ms. Hathi debunked three common myths, including:
Myth #1: Smartphones are more for personal communications and not for business interactions. “The fact is that everyone is using mobile devices, and it’s not just for personal use,” Ms. Hathi said. “They’re using it for business use or financial use as well.” She cited research showing that 93% of ultra-high-net-worth investors use mobile devices to check account balances and information and 65% of ultra-high-net-worth investors use mobile devices to research investments. “Mobile devices are really ubiquitous with regard to how people think about spending time in their financial lives,” Ms. Hathi said.
Myth #2: Social media is for young folks. Research shows social-media usage has changed dramatically since 2005, when people between 18 and 29 were the biggest users of social media and just 1% of people 65 and older were using it, Ms. Hathi said. Although young people still are the biggest users, 46% of people 65 and older now use social media. The widespread use of social media across age groups makes it important for advisers to think about social media as part of their marketing plans, Ms. Hathi said. “This is happening,” she said. “This is where people are. And it’s just not young people. It’s where everyone is.” (See accompanying sidebar about social media.)
People are not just using social media for entertainment, Ms. Hathi said. Research shows that nearly half of all financial advisers, including registered investment advisers as well as those with wirehouses and independent broker-dealers, use social media daily. More than 70% of those advisers report that social media has helped them aggregate assets. Yet Schwab has found that only about 30% of RIAs use social media. “You all are using it less than your peers in those captive channels,” Hathi said. “Probably something for all of us to think about.”
Myth #3: People don’t trust websites to guide important decisions. Hathi cautioned advisers not to think that choosing an adviser is a decision too personal to make by engaging with a website. She noted that online match sites account for 30% of today’s marriages. “If people feel comfortable enough to find their spouse on an online dating site, don’t we think they’d be comfortable enough to find their financial adviser?” she asked.
Websites seeking to match investors with advisers already have appeared.
“There are complications there because of testimonials and other things like that,” Ms. Hathi said. “No one’s really cracked the code…. But it does feel like someone’s going to, and there is going to be a way to find financial advisers.” In addition, reviews of financial advisers can be found at yelp.com, Ms. Hathi said. “So that online brand, that reputation, is really important,” she said. “And people are trusting websites to make important decisions.”
With more people trusting websites and using them to gather financial information before seeing an adviser, the role of advisers is changing, Ms. Hathi said. Just as WebMD has caused primary-care physicians to assume more of a navigational role for patients, advisers must be ready to be their clients’ financial guides, Ms. Hathi said. “It’s not necessarily just about having all the answers…but creating trust, creating the relationship – something you all do incredibly well — and then helping navigate them to the right answers,” she said.
These technological trends are converging with some significant social and demographic trends, Ms. Hathi said. Schwab’s research shows that 60% of RIA clients are 56 or older, and the average age of an RIA client is 59. These older clients typically account for 69% of the assets managed by the average RIA firm. But 40% of these older clients already are retired, and 63% of them are drawing down their portfolios.
To continue growing, RIAs must engage pro-actively with the next generation of clients — today’s 30- to 45-year-olds, whom Schwab refers to as “Gen Now,” Ms. Hathi said. But few advisers are doing so. Schwab’s research shows just 16% of RIAs are in touch with clients’ children who are part of Gen Now. “We think that’s an opportunity missed,” she said. “Those folks are actually very much in need of financial advice.”
Research shows that Gen Now members are more willing to pay for financial advice and are more interested in the holistic financial advice that many RIAs offer, Ms. Hathi said. Gen Now also includes more individuals earning $500,000 or more annually than any other generation. “These are really great prospects for you, but you’re not necessarily engaging them,” she said.
Noting that the RIA industry “is underrepresented when it comes to diversity,” Ms. Hathi also urged advisers to pay attention to the following societal and demographic trends:
• The expanding role of women. Today, 44 percent of affluent married women earn the same or more than their spouse. By 2020, women will control 50% of the projected $22 trillion in private wealth in the United States. Over the next 40 years, 70% of the $16 trillion in intergenerational wealth expected to be transferred between generations will be transferred to women. These trends will create a “huge market opportunity” for advisers, Ms. Hathi said.
• Increasing cultural and social diversity. One-third of U.S. millionaires were born outside the United States or are first-generation immigrants, and more than 80% of these millionaires are self-made.
“These are your target clients; these are your prospects,” Ms. Hathi said. “How much diversity do you have in your firm? That doesn’t mean that a woman client is going to want to be served necessarily by a woman adviser, or an African American client is going to need to be served by an African American adviser. But…when they walk into your office, they need to feel like they’re understood. If they see no one who resembles them…no one who might resemble their values, they might feel like you don’t understand them, that you’re not necessarily a good fit. And you all know better than anyone else that that understanding, that connection, that trust, is critical.”
This article is part of a special advertising section that appeared in the December 15, 2014 issue of InvestmentNews. It was written by the InvestmentNews Content Strategy Studio and does not reflect the views of the InvestmentNews editorial staff. To download the full supplement, please click here.