TD Ameritrade Institutional RIA Sentiment Survey Independent Registered Investment Advisor ( RIA ) Views on the Markets, the Economy and Industry Trends January 2016 1
RIAs predict faster growth for themselves in 2016 After a successful second half of 2015, roughly 80% of RIAs say assets under management ( AUM ) will grow in 2016, and half expect to grow faster than last year. Average expected increase: 17%. More new clients are coming from a wider spectrum of channels. In fact, advisors with $250M+ AUM, say 47% of their new clients are from other RIAs. Top management priority this year? Improve efficiency. Top tech investment? Bolster cyber-security. RIAs are pursuing new client niches to grow, and nearly half are upping their marketing / advertising as part of their growth plans. To manage growth, nearly a third will hire more junior advisors, and 28% will add to back office staff. Interest rate moves mean RIAs are adjusting client portfolios accordingly RIAs are most concerned about the impact of a rising interest rate environment on client portfolios. 41% of RIAs expect the U.S. stock market to increase, versus 60% who thought so last year. 79% of RIAs already adjusted allocations, largely by moving out of bonds and other rate-sensitive vehicles. 2
Regulatory issues take a back seat this year as RIAs cite new concerns Macro-economic environment is most likely to have the biggest impact on firms in 2016. Generational wealth transfer is biggest competitive threat. RIAs are largely unconcerned by robo-advisors. Indeed, 14% of firms are launching robo offerings to attract new clients. Of these firms, 84% will be up and running by year s end. Advisors are in no hurry to retire, but succession planning is underway Less than 10% plan to retire within five years. Most advisors plan to name successors from within. They will hire and groom advisors as needed. More advisors are taking succession planning seriously: only 17% say there are no formal plans in place, compared to nearly 40% last year who said they had no formal succession plans. 3
Business Growth 4
2015 ended with brisk growth for most RIAs Half anticipate their firms will grow faster this year RIAs predict assets under management increasing by 17% on average in 2016 Average Growth Rate: 13% Average Growth Rate: 15% Average Growth Rate: 14% 63% 53% 49% Increased 34% 41% 45% Remained about the same Decreased 3% 6% 6% New Clients AUM Revenues Q80: Has the total number of clients served by your firm decreased, increased, or remained about the same over the past 6 months? Q102:...By approximately what percentage has your firm's client base grown? Base: Those who increased clients (n=190) Q115 In the next 6 months, do you anticipate AUM to experience a slower rate of growth, faster rate of growth, or remain the same? (n=190) Q104REV: Have your firm's assets under management decreased, increased or remained about the same over the past six months? Q104:...By approximately what percentage has your firm s AUM grown? Base: Those who increased AUM (n=160) Q90 Over the past six months, has your firm's revenue decreased, increased or remained the same? Q91:...By approximately what percentage has your firm s revenue grown? Base: Those who grew revenues (n=148) Q115REV: In 2016, what is your outlook for your firm s assets under management? Q116REV: What percentage change are you anticipating in your firm s AUM growth rate in 2016? 5
The sources of new RIA clients are changing Sources of New Clients Past Six Months 2016 28% 2015 2014 2013 2012 17% 20% 23% 25% 30% 8% Full-commission brokers Other RIAs Banks Self-directed investors** Clients who are new to investing** 52% 55% 55% 57% 7% 6% 12% 8% 10% 14% 10% Other places ** Asked for first time in 2016 12% 20% 14% 17% Base: Total (n=302) QNEW8: Over the past six months, from which type of competitor did the majority of your firm s new client assets come? 6
Larger firms say most clients come from other RIAs Sources of New Clients Past Six Months (2015) 47% 8% 14% 17% 28% Other places RIAs with $250M+ AUM 6% 3% 22% 8% 10% All RIAs Banks Clients who are new to investing Self-directed investors Other RIAs 20% 17% Full-commission brokers Base: Total (n=302); RIAs with $250M AUM (n=36) QNEW8: Over the past six months, from which type of competitor did the majority of your firm s new client assets come? 7
Growth Strategies & Management 8
RIAs improving efficiency, enhancing service Top Business Management Initiatives for Firm Growth 82% 75% 56% 51% 45% 41% Improve efficiency Enhance client service and delivery * Advisors could choose more than one answer Invest in technology Train and develop staff Implement a formal marketing / social media plan Augment compliance Base: Total (n=302) Q140REV: Which of the following operational business management initiatives are you currently implementing or planning to implement in 2016 to help your firm grow? Multiple Responses Accepted 9
Cyber-security is the top tech priority Top Technology Investments - 2016 Cybersecurity 56% Customer Relationship Management (CRM) tools Client facing tools (i.e., website, portals, social media) Performance reporting tools Document management tools Financial planning tools Tools for mobile devices / apps Portfolio accounting tools Portfolio rebalancing tools 42% 41% 40% 37% 36% 32% 32% 30% Online advice / robo-advisor services 14% Not planning to make tech investments 20% Other 5% * Advisors could choose more than one answer Base: Total (n=302) Q180REV: Which of the following technologies are you considering investing in to help drive your growth in 2016? 10
RIAs target new client niches to fuel growth Top 2016 Marketing Strategies Add new niche clients 53% Increase marketing / advertising spend 47% Add new markets 31% Add new expertise 28% Base: Total (n=302) Q200REV: In 2016, which of the following marketing or growth strategies do you plan to implement to attract new clients? 11
RIAs hiring young talent to handle growth Plans to Hire to Accommodate Growth Hire new junior / entry-level advisors 32% Add to back office staff 28% Hire new lead advisor(s) 21% Open and staff new location(s) 9% Other personnel investments 10% Base: Total (n=302) Q175REV: Who are you planning to hire in order to accommodate business growth in 2016? Multiple Responses Accepted 12
14% of RIAs to launch robo & online advice offerings Expected Timing of Robo and Online Advice Launch 18% 21% 3% 15% 42% Why RIAs are Building These Tools Already in place Q1 2016 First Half of 2016 By End of 2016 Not in 2016 Of those RIAs planning robo- and online advice services, 85% say these tools will be available by the end of 2016 Attract a different market segment 88% Appeal to the next gen 82% Enhance the tech experience for clients 56% Other 12% Base: RIAs planning online advice tools/roboadvisor services for 2016 (n=34) QNEW12A: When do you expect to launch online advice tools or roboadvisor services for your clients? QNEW12B: How will an online advice solution integrate with your firm s existing offerings? Multiple Answers Accepted 13
Market Views 14
RIAs remain upbeat on the U.S. economy U.S. Economy Outlook 3% 7% 6% 5% 3% 7% 6% 4% 35% 46% 50% 48% 37% 44% 42% 25% 26% 26% 29% 36% 58% 34% 33% Very Optimistic Somewhat Optimistic Neutral Somewhat Pessimistic Very Pessimistic 27% 29% 17% 21% 14% 14% 14% 14% 10% 5% 5% 4% 4% 3% 1% 3% 1% 2009 2010 2011 2012 2013 2014 2015 2016 Base: 2016 Total Respondents (n=302) Q34. Again, looking ahead to the next six months, what is your outlook on the U.S. Economy through the first half of 2016? Would you say it is very pessimistic, somewhat pessimistic, neutral, somewhat optimistic or very optimistic? 15
RIAs may be more cautious on the stock market U.S. Stock Market Outlook 60% 41% 25% 41% Increase Remain about the same Decline 15% 18% 2015 2016 Base: Total (n=302) QMI11. What is your outlook on the U.S. stock market through the first half of 2016? Do you think it will decline, remain about the same, increase? 16
Rising rates expected to impact clients most Which Factors Will Impact Client Portfolios? Federal Reserve interest rate increase(s) 84% Muted U.S. corporate earnings growth 81% U.S. unemployment / job growth 77% Global impact of a China slowdown 75% Strengthening of the U.S. dollar 73% 2016 U.S. Presidential election 62% Base: 2016 Total (n=302) QNEW2. Which of the following headlines are you watching for their potential impact on client portfolios? Multiple Responses Accepted 17
RIAs have already made portfolio adjustments Do Current Asset Allocations Account for Rising Interest Rates? 21% Yes No 79% Base: Total Respondents (n=302) QNEW5 Have you already adjusted your current asset allocation to accommodate what is expected to be a rising U.S. Interest rate environment? 18
RIAs are preparing for a possible downturn Steps to Prepare for a Potential Market Downturn Shifting allocations into less volatile assets 64% Moving out of bonds and other rate-sensitive assets 45% Selling securities and rotating into cash 38% Other 24% Hedging by using options 19% Allocating more assets into alternative investments, such as hedge funds 17% Not making any changes to our current approach 15% Base: Total Respondents (n=302) QNEW6 What actions are you taking, more now than in the past, to protect your clients from a possible market downturn? Multiple Responses Accepted 19
Industry Concerns & Competitive Threats 20
Economy now the #1 concern, not regulation Factors or Trends that May Impact RIA Firms in 2016 *New to survey this year Macro-economic environment Managing firm growth / business growth Aging client base* 11% 15% 11% 12% 27% 22% 24% 20% 24% 23% 20% Legal, compliance or regulatory changes Succession planning Recruiting / retaining talent Changing technology* 4% 5% 11% 19% 29% 32% 9% 10% 11% 14% 8% 9% 9% 15% 8% 40% 2016 2015 2014 2013 2012 Advisors could choose more than one answer Base: 2016 Total (n=302) QNEW7A. Which of the following has the potential to have the greatest impact on your firm in 2016? QNEW7B: Of those potential impacts...please select the one that you think will be the most impactful to your firm. Multiple Responses Accepted 21
Generational wealth transfer is the top threat Top Competitive Threats to Firm Growth * New to survey this year 50% Generational wealth transfer to non-clients* 2016 More investors choosing DIY online investing 33% 33% 42% 2015 2014 Regulators 39% 56% 71% Asset management companies offering advice-embedded investment products Emerging nationally-branded RIAs 21% 28% 30% 31% 35% 31% Wirehouses / broker-dealers Other 12% 12% 7% 3% 4% 2% Advisors could choose more than one answer Base::Total (n=302) QCI3REV: What are the top competitive threats to your business growth in 2016? Multiple Responses Accepted 22
RIAs remain largely unconcerned about robos Concern that Robo-advisors are a Threat to Their Firms Extremely concerned Somewhat concerned 1% 1% 17% 19% Not very concerned 20% 29% Not at all concerned 82% 80% 62% 51% 2015 2016 2015 Base: Those aware of robo-advisors (n=236) 2016 Base: Total (n=302) QCI7: Using a scale of 1 to 10, where 10 means "Extremely concerned" and 1 is "Not at all concerned", how concerned are you that "robo-advisors" pose a threat to your firm? 23
Next Generation/ Succession 24
Less than 10% of RIAs expect to retire within five years More than 15 years 65+ 17% 45% 55-64 31% 11 to 15 years 22% 44-54 30% Average current age: 53 Years 6 to 10 years 24% 35-44 14% Within 5 years 9% Retirement 1Expectation 18-34 8% Age Base: Total (n=302) QNG2: What is your age? QNG6REV: In how many years do you expect to retire?? 25
RIAs are more focused on succession, with new leaders likely to emerge from within Succession Plans Successors to come from within the firm 36% 60% Hire and groom advisors with some experience 25% 50% Sell the firm to another RIA 32% 49% 2016 2015 Merge the firm with a financial buyer or aggregator firm 24% 34% Hire and groom recent college graduates 16% 30% Moving in the right direction! No formal plan in place 17% 39% * Advisors could choose more than one answer QNG4REV: Which of the following statements describes your succession plan for your firm? Please choose as many as apply to your situation. Multiple Responses Allowed 26
Appendix 27
Demographic Profile Demographic Profile Total Demographic Profile Total Job Title Owner, President, Partner or Principal Financial Advisor, Investment Manager, Portfolio Manager n=302 83% 6% Vice President 4% Registered Investment Advisor, Investment Advisor 3% Chief Investment Officer 2% Director 1% Certified Financial Planner, Financial Planner 1% n=302 Age 25-34 8% 35-54 (NET) 44% 35-44 14% 45-54 30% 55+ (NET) 48% 55-54 31% 65+ 17% Average Assets under Management (AUM) = $265 Million Base: Total (n=302) QS1 What is your job title? Are you the firm's... QNG2. What is your age? Q37 What are the approximate total assets under management at your firm? 28
About the Survey The findings are the results of a telephone survey, conducted by MaritzCX on behalf of TD Ameritrade Institutional, a division of TD Ameritrade, Inc. 302 independent registered investment advisors (RIAs) with firm assets under management averaging $265 million participated in the most recent wave of this annual survey, which was conducted during the fourth quarter of 2015. Independent RIAs who custody with TD Ameritrade Institutional and other independent RIAs were asked to share their views on the economic outlook for their firms and the advisor market in general. Margin of error is ±5.6 percent. 29
About Us About TD Ameritrade Institutional TD Ameritrade Institutional is a leading provider of comprehensive brokerage and custody services to more than 5,000 fee-based, independent registered investment advisors and their clients. Our advanced technology platform, coupled with personal support from our dedicated service teams, allows investment advisors to run their practices more efficiently and effectively while optimizing time with clients. TD Ameritrade Institutional is a division of TD Ameritrade, Inc., a brokerage subsidiary of TD Ameritrade Holding Corporation. About TD Ameritrade Holding Corporation Millions of investors and independent registered investment advisors turn to TD Ameritrade s (Nasdaq: AMTD) technology, people and education resources to help make investing and trading easier. Online or over the phone. In a branch or with an independent RIA. First-timer or sophisticated trader. Our clients want to take control, and we help them decide how - bringing Wall Street to Main Street for more than 39 years. An official sponsor of the 2014 and 2016 U.S. Olympic and Paralympic Teams, as well as an official sponsor of the National Football League for the 2014, 2015 and 2016 seasons, TD Ameritrade has time and again been recognized as a leader in investment services. Visit TD Ameritrade's newsroom or amtd.com for more information. Brokerage services provided by TD Ameritrade, Inc., member FINRA /SIPC MaritzCX and TD Ameritrade, Inc. are separate, unaffiliated companies and are not responsible for each other's products and services. 30
31