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Higher tech spending, asset growth top RIA trends: Survey

Ilana Polyak, special to

It's anyone's guess how the markets will shake out this year. But financial advisors are feeling good about their own prospects for the year ahead.

According to a survey conducted by TD Ameritrade Institutional, advisors said their business grew last year in terms of both assets under management and revenue, and they expect more of the same in 2016.

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Eighty percent of the advisors in the survey believe that their assets under management will increase; the average rate of growth is expected to be 17 percent.

"The last few years have been really good for RIAs," said Vanessa Oligino, TD's director of business performance solutions. "They've had a lot of success engaging do-it-yourself investors, in addition to improving efficiency."

TD's survey of 302 independent registered investment advisors — both those who custody with TD and those who custody elsewhere — identified the biggest industry trends.

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Markets, efficiency aid growth

For the most part, the survey found that advisors are benefiting from the strong market performance of recent years and the continuing defection of clients from commissioned broker-dealers. New business is also coming from clients who had previously used robo-advisors.

"My guess is that we'll begin to see some migration out of robo-advisors," said Norman Boone, president and founder of Mosaic Financial Partners. "People realize they need more of a human touch."

Still, 20 percent of RIAs believe that robo-advisors are a threat. But 14 percent of advisors said they plan to start using a robo or online advice offering this year for their clients. "RIAs are doing this to attract DIY investors, but their existing clients also have more of an appetite to engage online," TD's Oligino said.

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Clients want tech

Robo technology encompasses both back-end processes, such as portfolio allocation, automatic rebalancing and data aggregation. It also refers to user-friendly portals on the front end that let clients see their portfolios and make changes without interactions with an advisor. Using this type of technology frees up "[advisors'] capacity to do other things," said Oligino.

The investment in technology is yet another reason for some of the growth that the industry has experienced, she added. That's a trend TD expects to continue. Eighty-two percent of advisors said that improving efficiency was their top business-management goal for this year.

"I do not see the robos as a major threat, but they will cause advisors to adapt to new technology," said Tom Orecchio, a fee-only advisor and principle of Modera Wealth Management.

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Cybersecurity a major issue

Although robo technology tools are getting a lot of attention, they're not the biggest technology expense advisors face. Cybersecurity is. More than half of the respondents in the survey said that cybersecurity will be their top tech investment in 2016. "You don't want to be the advisor who gets hacked, TD's Oligino pointed out.

The Securities and Exchange Commission's recent guidance on cybersecurity for RIAs has spurred them to action. A cybersecurity plan is something that the SEC is checking on now. "We just went through an SEC audit, and it was a big topic," said Fariba Ronnasi, president of Elite Wealth Management.

On the issue of succession planning, things don't look as rosy, however. Seventeen percent of advisors have no formal succession plan, though that's an improvement over years past, said Oligino at TD. "Of course, we'd like to see 100 percent of advisors with a succession plan," she added. "But a few years ago, there were fewer firms that had documented succession plans than they have today."

Times like these make firms that do provide important added value that much better positioned to retain clients and pick up new ones.
Norman Boone
president and founder of Mosaic Financial Partners

Oligino expects more advisors to implement plans in coming years as the SEC now requires business continuity planning. "It's a natural complement to think about succession planning at the same time you're thinking about business continuity," she said.

To advisors such as Mosaic Financial Partners' Boone, however, too much has been made about the succession planning crisis in the industry. Even with 21 percent of advisors being over 60 years old, according to figures from Cerulli Associates, there's no reason to think they'll retire en masse in the next few years, he said. TD's survey found the same thing. Fewer than 10 percent are planning to retire in the next five years.

"Most people these days aren't dying in their 60s or 70s, so I think we have a lot longer of a time horizon than the observers give us credit for," Boone said.

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By naming and grooming successors, advisors, especially founders, may find themselves forced into retirement well before they are ready. "Succession planning is not as obvious and easy as some would have you believe," Boone said.

Not surprisingly, the jittery markets at the end of 2015 and the beginning of this year were top of mind for advisors. The macroeconomic environment was the biggest factor impacting RIA firms, the survey found.

"Times like these make firms that do provide important added value that much better positioned to retain clients and pick up new ones," Boone noted.

— By Ilana Polyak, special to