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Schwab Boss: Referrals Still Top FA Prospect Source

By Crucial Clips     January 18, 2017
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ @ Schwab Impact 2016, Oct. 26, 2016 

BRUCE LOVE, MANAGING EDITOR, FINANCIAL ADVISOR IQ: Hi, this is Bruce Love with Financial Advisor IQ. And I’m here with Bernie Clark, the head of Schwab Advisor Services. Bernie, you’ve just completed the 20th wave of the Independent Advisor Outlook Survey.

BERNIE CLARK, EVP, SCHWAB ADVISOR SERVICES, CHARLES SCHWAB: Yes.

BRUCE LOVE: It doesn’t really seem to have changed in the last 10 years that financial advisers think that their clients are going to come mostly from referrals. One could say that’s the rejection of the idea of using modern marketing techniques and social media.

BERNIE CLARK: There’s so much in the question that you just asked because they have been successful largely because of referrals. And when we ask them to report through surveying and our benchmarking study, they tell us that their retention is in the very high 90s, which is very unusual for this industry, as you know. And so they’ve really built a ready-made sales force of their satisfied — in fact, extremely happy — clients. And those clients are out talking to their constituents — whether that’s friends, colleagues, family members — about the great services that they get.

On a stretch — and this is probably unfair for me to go here, but on a stretch I think they’re using all of those medians by really using the social media of their clients reaching out to their constituents and friends and extending the reach of the advisor even further. That said, advisors do have to start to employ marketing more. They do have to start to engage in social media more because, even as we’ve often talked about, if it’s not proactive you need to understand what people are saying about you.

One of the biggest, I think, challenges in this industry for advisors are they’re extremely good at what they do with their clients, but they’re not very well known. And so the idea of becoming more branded, if you will, or more well known in their communities — even a little bit outside their communities — is something that’s going to be critical in the future because that next generation may very much like what they do. But how will they find them? And they are going to look down those paths as you’ve described, the social media.

In fact, the next generation is probably going to rely on crowdsourcing information a lot more than they will on individuals. And you better be out there doing some of that.

BRUCE LOVE: So, Bernie, when you look at this time around, advisors were saying that around 1/3 of their new clients were coming from brokerages. Yet, if you look at the results from January 2009, it was a full half of their new clients were coming from brokerages. With the sorts of changes we’re seeing in regulation, would you expect that downward curve to start coming back up again?

BERNIE CLARK: Yeah, well, I think there’s this steady stream that we’re starting to see of referrals certainly coming. We also see that clients are coming from traditional models — full-service brokerages, if you will. And that’s been rather consistent, although it may have trended off at a point in time.

We’re actually seeing that coming from the full-service traditional models. We’re seeing teams leave and take clients with them. So some of those clients who may have been leaving on their own are now coming out to independence along with the people that they’ve been working to for a better model. We also see that the independent broker dealer model is starting to shed some of their clients and their teams, again.

And so I think regulation is having an impact here. But I think it’s an accelerant. I don’t think it’s a game-changing move right now, right? So I think you’ll see more teams looking at independence as a viable alternative. The Department of Labor’s fiduciary role certainly spurs that thought of individuals coming out and being in fee-only environments with open-architecture product where they don’t have to deal with that sort of conflict and complication that comes.

So, yes, I think we’ve been on this track of the fiduciary standard. I think we’re moving that a highway. We may have been going 55. We may have hit a 75-mile zone. And we’re increasing our speed on it. But I think it’s something that’s been coming for quite some time.

BRUCE LOVE: Bernie, in terms of RIAs looking at themselves and looking at what factors they find as differentiators in the marketplace, a vast majority in your survey said that being a fiduciary was the biggest differentiator for them. Yet, when you look at another part of the survey, it says that most people in the public don’t know what the DOL rule is and that, in fact, a minority of advisors think that the fiduciary rule will even be a good thing. How do you explain that dichotomy?

BERNIE CLARK: The fiduciary rule is certainly important. But I will tell you, by and large advisors — our advisors, the ones I know and talk to all the time — have always been fiduciaries. In fact, by design the independent model is a fiduciary model. And, interestingly enough, during this process of coming to legislation and regulation they have been advocates of making sure that fiduciary standards were placed on the remainder of the industry, which one might say is actually blurring the differentiation that they’ve had. But they think it’s so important for clients to know that they’re working under a fiduciary type of standard.

Now you talk about clients, and this is where it starts to get interesting because fiduciary’s a big word. Everybody talks about sitting on the same side of the table with their clients. We need to educate more. We need to make sure people understand the obligation when you become a fiduciary. It’s critically important.

We’ve launched a national advertising campaign just in June that really focuses on using advisors’ voices and their faces after we talk with advisors and their clients about what was important and creating full-page print ads and educational material that we’re publishing to make sure that people start to understand the difference and they start to understand the difference in the independent model versus what the more-traditional models are. It’s critically important that people understand what’s available to them. And they just start to ask the right questions.

We’re talking about conversations this week. That’s what these are, conversations and trying to understand, am I getting the best possible help for my financial well being — and maybe not just my own financial well being but the financial well being of my family? How critical is it to make sure that you’re doing the right things in those places? And, hence, that’s where the word fiduciary just comes in so powerfully. Just do what’s in my best interest.

And, you know, we see this in the nontaxable space given the Department of Labor’s decree. We know that the SEC will be coming with a like standard, if not in ’17 then 2018. And this fiduciary standard will begin to apply to the taxable side of the business, as well.

BRUCE LOVE: Bernie, thank you very much.

BERNIE CLARK: Thank you, Bruce. It was great.