The existence of a fiduciary duty is the main reason that U.S. investors use independent investment advisors, according to a new survey of those advisors.
The survey, conducted by Maritz Inc. on behalf of TD Ameritrade Institutional, reports that the top reason investors choose to work with an independent registered investment advisor (RIA) is that RIAs are required to offer advice that is in the best interest of clients. This factor was cited by 29% of advisors, followed by the personalized service and competitive fee structure offered at an RIA firm (21%), and dissatisfaction with full commission brokers (19%).
In the United States, regulators are seeking to implement a common fiduciary standard for both investment advisors and broker dealers. Investor advocates in Canada have called for a fiduciary duty to be mandated here, too, and the Ontario Securities Commission has said that it is studying the issue.
“The survey results support what we believe is a long term trend of investors gravitating to the fiduciary model. Over the past few years, we’ve seen RIAs benefit from money in motion due to disruption at traditional full-commission firms. And as the dust has settled, investors can see more clearly the potential benefits of hiring an RIA,” said Tom Bradley, president, TD Ameritrade Institutional. “Investors may increasingly seek the confidence that can come from working with independent RIAs who sit on the same side of the table and are required by law to put their clients’ interests first.”
Uncertain economy prompts concerns about growth
On other subjects, the TD survey also found that advisors are feeling less confident about the economy. Over half of advisors indicate they are pessimistic to very pessimistic about the outlook on the U.S. economy over the next three months, up from just 18% the previous quarter. Yet, while RIAs are increasingly negative in their economic outlook, job satisfaction remains high as eight in 10 RIAs are somewhat to completely satisfied with their careers, it says.
Additionally, it found that most RIAs report their total number of clients increased or remained steady over the past six months, with the majority of new assets coming from traditional full-commission firms (55%); RIAs report an average revenue growth rate of 18% and added clients at an average rate of 13% over the past six months. However, when asked about the current economic climate and its impact on their businesses over the next 12 months, growth and profitability were cited as the top concerns, along with macroeconomic environment and regulatory changes.
It reports that 85% of RIAs surveyed say they avoided cost cutting over the past six months, but fewer RIAs say they increased their budgets, 23% reported an increase in spending, down from 34% the previous quarter. Advisors who increased their budgets increased spending an average of 23% and overwhelmingly chose to invest in technology and marketing, it says. Advisors who decreased business spending trimmed an average of 19% of total expenses, mainly cutting travel and client appreciation and entertainment activities.
Over 500 RIAs participated in a telephone survey from August 15 – 26. The margin of error in the survey is ±4.4%.