Additional Services Key for RIA Growth Plans

Financial advisers who have recently gone independent are looking at growth opportunities by offering services beyond traditional wealth management, according to Charles Schwab’s recent Supported Independence Study.

In a survey and interviews of 42 advisers who work for a registered investment adviser and transitioned to independence in the last 4 years, the firm found the group offering services beyond traditional portfolio and wealth management to areas such as multi-generational wealth planning (76%), saving for college and other milestones (76%) and engaging clients with risk management (71%).

The results show an increased push toward more holistic financial planning that, according to Schwab, is contributing to the desire for advisers to have more freedom of service offerings and fee setups as RIAs.

“Advisers want the freedom to do what is best for their clients,” says Jon Beatty, chief operating officer of Schwab Advisor Services. “Being independent allows advisers to provide more personalized service, a wider range of products and solutions, and to build their business their own way—and that can also lead to additional opportunities for growth.”

Schwab is the country’s leading custodian for RIAs as built under the leadership of Bernie Clark, who will be moving into an advisory role at the end of this month. The firm’s services are being used by almost 15,000 advisers as of May 31, according to a Schwab fact sheet.

A minority of recently independent respondents to Schwab’s survey also noted extending services into further planning areas, including:

• Tax planning (29%)
• Estate planning (17%)
• Family Office services (17%)
• Charitable giving planning (14%)
• Access to banking and lending solutions (12%)

Beatty notes that, along with these additional services, many advisers are incorporating client’s 401(k) assets into their portfolios via the self-directed brokerage account window.

“Retirement planning is central to the role advisers play when serving their clients,” Beatty notes. “Managing their clients’ SDBA assets represents a business opportunity for independent RIAs.”

The firm’s most recent SDBA indicators show that 17% of participants who use the firm’s offering, the Schwab Personal Choice Retirement Account, hand over investment management of their 401(k) to their RIA. In  the first quarter of 2024, the average SBDA account balance via the offering was almost double that of non-advised participants, according to Beatty.

401(k) Potential

In an interview separate from the Schwab report, RIA Renée Pastor, a wealth manager and founder of The Pastor Financial Group, agrees with the vast potential in the marketplace for independent advisers to manage participants’ 401(k) assets via the SBDA—though via the plan sponsor menu itself, which can be an option plan fiduciaries choose for participants.

Pastor notes the advantages of having 401(k)s managed for an advisory fee including increased returns, syncing the entire portfolio of assets and setting up the maximum retirement savings and goals.

“For all these years I wasn’t able to [offer the service],” she says. “Now I am finding these highly paid professionals who have financial advisers, but don’t even know they can get help with their 401(k) accounts.”

In her view, one holdup to such services is that many plan sponsors, while offering an SBDA, do not choose the option of allowing third-party financial advisers to manage the qualified plan assets. She sees this as a disadvantage for independent advisers who are going up against the larger financial firms already engaged with participants via plan administration and services.

“If I can wave a magic wand for this industry, I’d give participants the right to hire third-party advisers if they want, and to have the fees deducted from their plan,” she says. “People who have financial advice do better, and what’s more, when you look at surveys of participants, they want financial guidance and are willing to pay a reasonable price for it.”

Beyond Wealth Management

Meanwhile, Schwab’s Beatty also noted the opportunity for advisers to partner with clients who are small business owners on either offering 401(k) plans directly or via partnership.

“Helping clients who are business owners with workplace retirement plan needs is an area of opportunity for RIAs, especially those who may be part of an adviser firm with both wealth management and retirement plan practices,” he says. “We see these connections being made more frequently among the adviser firms we serve as the landscape continues to evolve.”

Schwab’s report included surveying and discussion with 158 advisers who are currently with a brokerage firm or investment banking division, but are considering going independent in the next three years. Among that set, 44% are planning to join an existing RIA, 31% are considering starting their own firm and 24% are unsure of which path they will take.

Mergers and acquisitions in the RIA space have been rampant in recent years, both with pure wealth management firms as well as qualified retirement plan advisement and wealth divisions seeking to capitalize on the retirement and wealth convergence.

Beatty sees the M&A as an “additive” to the adviser space, providing a path for some independent advisers to sell their firm in a way that sets them up for a strong succession strategy that can also keep providing services to clients. For others, merging may be a way to outsource administrative functions and free “up their time to deepen client relationships and enhance personalization.”

“In other words, M&A activity in the RIA industry shouldn’t be seen as a deterrent to those considering independence—it should be seen as a sign of a vibrant industry that allows advisers to chart their own course,” he says.

Correction: Updates to show that Bernie Clark’s move is not until the end of June.