Bernard J. Clark is head of Charles Schwab & Co. Inc.'s adviser custody unit, Schwab Advisor Services, a position he has held for the past 20 months.
Schwab Advisor Services provides custodial, operational and trading support for about 6,000 independent advisory firms.
Mr. Clark, who is known as Bernie, joined Schwab in 1998 as senior vice president for institutional trading and operations and also spent time as a client services representative in its retail-brokerage unit before moving to the RIA custody sales unit. He also has worked in operations and sales positions at Deutsche Morgan Grenfell & Co. in London, and at the former Salomon Brothers.
Q. Overall, 2010 was a good year for registered investment advisers. With two months to go, how is 2011 shaping up?
A. For us, 2010 ended with a record high in net new assets for RIAs, as well as a 45% jump in their margins, which was fantastic. This year began running in the right direction, but then we saw some volatility enter the market. We're still seeing significant growth in the RIA business. However, the month of August was pretty challenging. That said, clients are not reacting the way that they reacted in 2008. They are being very strong through these volatile markets, and retention is staying in the 97% and 98% range.
Q. Why aren't clients dumping their financial advisers like they did in 2008?
A. Advisers are uniquely qualified to spend time with their clients in a way that's about planning for the long term. And 2008 certainly accentuated that. But through that educational process, we see a lot more confidence in clients than we did back in 2008.
Q. Where are RIAs picking up most of their new clients?
A. Wirehouses, the traditional models. The top three reasons clients are coming to RIAs is that they've lost faith in where they are; they know someone who is having a better experience, which they would like themselves; and they want more depth, more planning and want to think more about their investments.
Q. There are many RIA firms with more than $1 billion in assets. How has that kind of individual, firm-level growth changed the face of the industry?
A. There's so much in that question. If you think about it, this was a $1.2 trillion market back in the early 2000s and it's now about a $2.7 trillion market. Successful RIAs are growing in the high teens, and sometimes in the 20% range. Their success is leading them towards these larger client bases that they are dealing with. We are also starting to see larger teams exit the traditional models and start off as $1 billion firms.
Q. How do newer entrants stand out in an increasingly crowded market?
A. Differentiation is critically important. In fact, the differentiation of the RIA model from the traditional model is really important. RIAs tend to be local and they tend to be in the communities where their clients spend their time.
Q. What about product differentiation?
A. If you look at the emerging markets, they are underrepresented in most indexes. Even if you look toward [gross domestic product] and purchasing-power parity, the emerging markets and developing markets have actually surpassed the developed markets. This is an opportunity that advisers can avail themselves of on behalf of their clients.
Q. What is your advice to advisers about succession planning?
A. It really starts with advisers having a strategic plan for their business. A succession plan is part of that strategic plan. There are lots of ways to create succession within a firm, and yet we find that nearly half of advisers don't have a formal succession plan. They need to have one and to commit something to paper.
Q. What are advisers doing to preserve assets as those assets change hands from one generation to another?
A. What they are focusing on — and we are helping them through our practice management services — is spending time with that [younger] generation. They need to get to know the adult children and they need to educate the adult children. But they also need to be developing their practices. The next generation will think about things differently. They might want more technology, for instance. They may not want as much in-person contact. They might also have a different view of the global markets than their parents did.
Q. Why has that been a stumbling block for this industry?
A. It's a little like succession. People tend to put it off. It's not something they think about on a daily basis. But it needs to be part of the strategic plan.
Email Fred Gabriel at [email protected]
