News on Wall Street has been pretty grim lately. Decades-old financial firms have imploded, banks are seeking capital infusions and sub-prime woes are likely to keep rippling across the industry. All of that turmoil hurts advisors at Wall Street brokerages: Brokerage stocks have rebounded recently, but are still dramatically lower versus last year, so advisors who own stock in their employers (as so many do) may have experienced big dents in their net worth. They may also have to contend with cranky clients who are worried about their portfolios, their assets, and, generally speaking, the quality of Wall Street management.
But at least one sector of the financial-services industry seems to have remained relatively unscathed by the crisis. Registered Investment Advisors (RIAs) say they’re doing all right, and aren’t feeling much heat from Wall Street’s volatility problems. At least, not yet. In fact, some of them say they may even be benefiting from the turmoil.
Many RIAs expect to see similar compound annual growth rates (CAGR) in 2008 as in 2007—around 17 percent. That’s according to Schwab Institutional’s Independent Advisor Outlook Study, which surveyed over 1,000 investment advisors managing about $231 billion in client assets. “Even with all of Wall Street’s challenges, RIAs still expect a lot of asset and revenue growth in the coming months,” says Bernie Clark, senior vice president of Schwab Institutional.
Not only have they managed to, for now, avoid the immediate affects of Wall Street’s problems, but investment advisors say they’ve actually won some clients away from full-service brokerage firms. In 2007, 38 percent of surveyed advisors’ new clients came from full-service broker/dealers. The top two reasons clients made the switch to investment advisors: They “wanted more personal advice,” and “lost trust in their previous firm,” the survey shows. Clark adds, “People are looking for a more customized approach. They want to know their advisor is only thinking of them when making financial decisions. That’s what RIAs have built their industry on.”
Bill Spiropoulos, president and CEO of CoreStates Capital Advisors, an RIA in Newtown, Pa., has added both new clients and new “breakaway brokers”—former wirehouse employees—to his firm. In fact, his firm has hired four of these breakaway brokers in the past six months. A former wirehouse advisor, Spiropoulos launched his investment-advisory practice two years ago. Between December 2006 and December 2007, CoreStates saw its assets under management jump 145 percent. And, in the first quarter of 2008 alone, assets jumped 33 percent. The vast majority of those new assets, about 80 percent, came from new clients that joined CoreStates from a full-service brokerage firm. “It’s been a grand slam,” Spiropoulus says.
His technique? Making sure clients understand exactly what’s going on in the market. In late 2006, his firm sent clients a report that explained how and why they should brace for a downturn in the market. He also helped develop a video that introduces clients to alternative investments. “I have to keep my client relationships. Clients need to understand that I’m in the game for the long term. If you fire me, I lose my shirt,” he says.
But that doesn’t mean RIA-land is totally worry-free. In fact, the percentage of advisors who believe it will be “very or somewhat difficult” to achieve clients’ investment goals in the current market environment is up to 70 percent compared with 27 percent of advisors who felt the same way last summer. Moreover, 78 percent of responding advisors believe unemployment will increase over the next six months compared with 35 percent who felt that way in July 2007. And 62 percent said inflation would increase compared with 53 percent last summer.
Investment advisors aren’t the only ones concerned. About 18 percent of responding advisors’ clients needed reassurance in the last six months that they would meet their financial goals. That’s up from 12 percent in July 2007 and 15 percent in January 2007. “Investors want to find out how the current liquidity and sub-prime problems affect them personally,” Clark says. Indeed, 67 percent of clients are concerned about the impact that sub-prime mortgages will have on their portfolios.
