Independent Advisors See Passive Investing as an Opportunity According to Charles Schwab Study

Low-cost investing is in vogue, with all sorts of people swapping actively managed investment accounts for more passive ones. This movement to passive investments such as exchange-traded funds provides a big opportunity for financial advisors, according to Charles Schwab's latest survey on the industry.

Earlier in November, in conjunction with The Charles Schwab Corporation's (SCHW) annual IMPACT conference that brought together around 2,000 financial advisors, Schwab Advisor Services polled advisors about their feelings on a host of topics including passive investing. It found that two in three advisors actually see passive investing as an opportunity for their business and not a deterrent.

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Of the survey respondents, 50% said that passive investing frees up advisors to provide clients with value-added services that are not part of traditional portfolio management, while 41% said that matching the performance of the portfolio with an index helps clients have more responsible expectations about performance and returns, and 39% said that it gives them an opportunity to tap a wider pool of potential clients.

The movement to embrace passive investing is also changing the attributes that financial advisors look for in new hires. According to survey respondent Dave Hill, president and managing director at Sonata Capital, getting smart people with investment savvy was critical in the past, but passively managed investments make it less important to hire those with technical know-how. "Portfolio management is just one part of how we serve clients. What's most essential is that we earn clients' trust and confidence by demonstrating high ethical standards and making complex issues understandable. Good communication and the ability to build a personal connection are critical to achieving this goal," said Hill in the survey. Schwab found that 82% of advisors polled said that they were looking for employees that had people skills.

Survey participants said they expect to have new assets in the next five years coming from a mix of new clients and existing ones increasing their investments. Financial advisors expected 45% of their new assets to come from new clients, with 37% expected to come from existing customers. Of the advisors polled, 33% expect growth to come from sales and client acquisitions, while 25% expect growth to be driven by developing and hiring top talent.

"As the industry matures, firms face the challenge of continuing to serve and build relationships with existing clients, while also investing in the future to create a pipeline of new-to-firm assets for long-term sustainability. It will take a careful balancing act to deliver client service excellence alongside achieving scale and implementing a strategic approach to talent management and technology," said Bernie Clark, executive vice president and head of Schwab Advisor Services, in the survey findings report.

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