Compliance July 18, 2016

Lawmaker Introduces Bill to Create Universal Retirement Plan

The plan would mandate employer contributions and automatically enroll employees into retirement accounts.
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U.S. Representative Joe Crowley (D-New York), vice chair of the Democratic Caucus, introduced the Secure, Accessible, Valuable, Efficient Universal Pension Accounts (SAVE UPs) Act.

The new legislation would universalize retirement savings accounts so every American worker would have an opportunity to generate tax-advantaged assets. The SAVE UPs bill would require employers with 10 or more employees that do not already offer a retirement plan to open individualized retirement accounts for every employee and contribute to those plans 50 cents per hour worked, per employee. Alternately, if an employer has an existing retirement plan that qualifies, they can keep contributing to that plan for their employees.

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In addition to the employer contribution, once enrolled, employees would automatically begin contributing 3% of their pre-tax income, which would increase gradually over time, unless they opt-out.

To help with the cost of contributing to these plans, smaller employers can receive a tax credit worth the value of contributions to 10 employee accounts. For small businesses with fewer than 10 employees, while they are not required to contribute, this tax credit will make it financially possible for them to do so voluntarily.

SAVE UP accounts will have built-in protections to cushion against dramatic losses like those seen after the market crash of 2007-2008, giving some reassurance to workers nearing retirement. Additionally, similar to the Thrift Savings Plan currently offered to federal employees, SAVE UP accounts will enjoy government oversight, private management, and a limited number of low-fee index fund options.

Last year, Crowley unveiled his “Building Better Savings, Building Brighter Futures” plan to address the savings and retirement security crisis in the U.S. The plan will make Americans more financially secure throughout their lifetimes by creating new financial options that encourage personal saving, expand employer-provided retirement plans, and strengthen Social Security. Details of the plan can be read here.

Data & Research July 15, 2016

RIAs Continue Growth Despite Market Volatility

Solid relationships between advisers and clients have been central to driving this growth during tumultuous market environments, Charles Schwab found.
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Independent financial advisory firms reported that they have maintained a 10-year growth trajectory despite numerous and varied investment environments, according to results from Schwab’s 2016 RIA Benchmarking Study.

The study underscores the critical importance of the adviser/client relationship as the bedrock of firms’ strength and resilience, and as a driver of growth. The data also reveals that stable client relationships coupled with robust business fundamentals is a recipe for success in firms of all sizes, as technology and human capital increasingly align to drive operational efficiency.

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Over the past year study results show, the growth trajectory for firms’ assets under management (AUM) and revenues eased somewhat, but remained positive:

  • AUM rose to $588 million in 2015 from $365 million in 2011, at a median compound annual growth rate (CAGR) of 9.2%; and
  • Revenues grew to $3.6 million in 2015 from $2.3 million in 2011, at a CAGR of 10.9%.

Solid relationships between advisers and clients have been central to driving this growth during tumultuous market environments. Independent advisors in the study doubled down on existing client relationships in the past year, and subsequently benefited from high client-retention rates and referral levels.

Average client size increased by nearly one-quarter (22%), as advisers spent more time reassuring clients and expanding the scope of their relationships. Additionally, client retention rates remained sky-high at 97% over the period of market turbulence, a testament to the trust advisers have built with their client base over time. Meanwhile, last year, roughly 75% of new clients [at firms with $100 million or more in AUM] came through referrals.

NEXT: Focus on technology and human capital

Increasing productivity and scale remains high on the list of goals for firm leaders, and this can translate into improved operating margins and increased profits. One-quarter (25%) of advisers reported that their top priority is improving productivity with new technology.

Firm profitability was up in the last year, rising 4% from the year prior and driven by continued improvements in operational processes and technology-driven efficiencies. This continues a longer term trend reported across these firms—profitability has jumped 27% in the past five years.

Firms are also focused on human capital, and are looking to strategically source the best talent to propel firm success. At mid-sized firms with $500 million to $750 million in AUM, 61% plan to add relationship managers or investment professionals this year, and 57% plan to add support staff.

Firms across peer groups strategically hire team members with unique qualifications:

  • 83% of firms have at least one CFP on staff;
  • 55% have at least one CFA on staff;
  • 42% have at least one CPA on staff; and
  • 23% have at least one JD on staff.

While firms will continue developing their technology, talent, and client base organically, a notable portion is already also preparing for inorganic opportunities to catalyze growth in needed areas. One-third (33%) of firms that manage more than $1 billion, and nearly 25% of firms with less than $1 billion in AUM, are actively looking to acquire. Study participants reported 208 instances of some type of merger and acquisition (M&A) activity, and 149 instances of “join” activity, in the past five years.

Additional industry M&A data from Charles Schwab shows that last year alone, transaction volume among RIA firms reached a ten year high of 84 deals, up 56% from 2014.

“Top performers are firms that view growth—both organic and inorganic—as non-negotiable, but achieve this growth without sacrificing the depth and quality of their existing client relationships,” says Jonathan Beatty, senior vice president, sales and relationship management, Schwab Advisor Services. “They find innovative ways to streamline operations, seize opportunity and achieve scale by taking advantage of best practices and resources at their fingertips.”

Detailed findings can be found at www.aboutschwab.com/press/research.

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