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The Financial Advisor Channel - US - March 2012

The strengthening of the economy has been a boon for the advisor market. Assets under management have rebounded to levels not seen since before the 2008 crisis and most advisors expect to keep growing their businesses. Baby Boomers are beginning to retire and will require financial assistance to help manage their assets. In addition, the recession has left a mark on the younger generations who are now more cognizant of the dangers inherent in not planning for the future, and many are more amenable to the idea of financial advice than ever before. Social media, the advertising darling of the moment, is being embraced by many advisors, although compliance concerns keep usage lower than it might otherwise be. As firms figure out how to address those concerns with standardized procedures or new technology (or both) many advisors will become more active in the media and learn how to use it to their best advantage.

While there are several positive trends within the advisor industry, there are challenges as well. The internet is a primary source of information for investors of all ages, and many people are looking at it as an alternative to an advisor. The industry is also aging, with the great majority of advisors over the age of 30, and the average age of the Financial Planning Association membership at 53. Advisors need to be thinking about succession plans and figuring out ways to bring younger people into the industry— and then keep them. With the retention rate of young advisors at approximately 20%, the future may see too few advisors for too many clients.

What you need to know

  • Now that having a secure retirement has replaced buying a home as the American dream, what adjustments should advisors make to their planning strategies?
  • How does the increasing number of college-bound Americans offer opportunity to advisors? What demographic should be of most interest to advisors?
  • How is the internet changing the nature of the advisory business? Will clients expect more or less from advisors due to online information that is available to everyone?
  • How is the rise of the hybrid RIA model affecting wirehouses?
  • How has the financial crisis and ensuing difficult economy affected investors’ perceptions of advisors?
  • How are firms overcoming the compliance issues related to social media?
  • What are the challenges advisors are facing in trying to grow their business?

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Table of contents

  1. Scope and Themes

      • What you need to know
        • Data sources
          • Consumer study data
            • Advertising creative
              • Abbreviations
              • Executive Summary

                • Industry overview
                  • The economy is stabilizing but still faces challenges
                    • Demographics that are attractive for advisors
                      • Advisors and their clients
                        • Use of media expands beyond the conventional
                          • The changing industry
                            • RIAs still growing and wirehouses still shrinking
                            • Insights and Opportunities

                                • Key points
                                  • More single Americans, and they need more advice
                                    • RIA firms report more interest from DIY investors
                                      • The Baby Boomers’ imminent retirement is changing advisor focus
                                        • Advisors can do more to help families with college planning
                                          • Advisors can benefit by working with women
                                              • Figure 1: Long-term financial concerns of women vs. men, September 2011
                                            • Seeking different ideas, high net worth individuals utilize several advisors
                                                • Figure 2: Number of firms used by investors with more than $500K to invest, 2010
                                              • Ensuring a secure retirement is the new American dream
                                                • Millennials need education and advice
                                                • Inspire Insights

                                                    • Inspire Trend: “Decline of Deference”
                                                      • Inspire Trend: “Retired for Hire”
                                                      • Market Size and Forecast

                                                        • Key points
                                                          • Largest U.S. financial services companies
                                                            • Figure 3: Largest U.S. financial services companies by revenues, 2010
                                                          • Largest broker-dealers
                                                            • Figure 4: 25 largest broker-dealers, by revenue, as of firms’ year end, 2010
                                                            • Figure 5: 25 largest broker-dealers, by total assets, as of firm’s year end, 2010
                                                          • Hybrid RIAs are the fastest-growing advisor segment
                                                            • Figure 6: Historical growth rate in advisors per channel, 2004-09
                                                          • Fewer advisors in the business
                                                          • Competitive Context

                                                            • Key points
                                                              • The internet is challenging the role of the advisor
                                                                • Figure 7: Percent of wealthy investors who have used the internet for advice or information, January 2011
                                                              • Wirehouses losing asset market share
                                                                • Adviser defection poses risk to market share of wirehouses
                                                                  • Figure 8: Adviser time allocation by channel, 2010
                                                                • New regulations and proposals keep coming
                                                                  • More sophisticated online capabilities
                                                                    • Online brokerage
                                                                      • Online advice
                                                                      • Segment Performance

                                                                        • Key points
                                                                          • Registered investment advisors increasing
                                                                              • Figure 9: Median RIA firms revenue and AUM, 2007-10
                                                                            • RIA growth may slow in 2011
                                                                              • Figure 10: Projected growth of RIAs and their AUM, 2011-21
                                                                          • Marketing Channels

                                                                            • Key points
                                                                              • Advisors and social media
                                                                                • Social media has limitations in financial services
                                                                                  • Figure 11: Benefits advisors see from social media, 2009 vs. 2011
                                                                                • Blogging helps advisors communicate expertise and relevance
                                                                                  • Mobile technology becoming increasingly necessary
                                                                                    • Technology ownership is growing among advisors
                                                                                      • Financial service firms are also starting to embrace mobile technology
                                                                                      • Market Drivers

                                                                                        • Key points
                                                                                            • Figure 12: Unemployment rates, 2009-12
                                                                                            • Figure 13: Consumer confidence indicator, January 2011-January 2012
                                                                                          • The recession is still affecting retirement planning
                                                                                            • Industry is consolidating
                                                                                              • More high school graduates are looking to go to college
                                                                                                • Figure 14: Number of 18-19 year olds in college, 1970-2009
                                                                                              • Personal wealth drives need for advice
                                                                                                  • Figure 15: Number of high net worth individuals in top 10 MSAs in United States, 2007-10
                                                                                                • Demographics are still favorable for market growth
                                                                                                  • Figure 16: U.S. population aged 21 or older, 2006-16
                                                                                                • Reaching out to younger investors requires a different approach
                                                                                                  • More challenging business environment
                                                                                                    • Firms having hard time hiring younger advisors
                                                                                                      • Different ways to attract younger advisors
                                                                                                      • Leading Companies

                                                                                                        • Key points
                                                                                                          • LPL Financial
                                                                                                            • Bank of America/Merrill Lynch
                                                                                                              • Raymond James
                                                                                                              • Innovation and Innovators

                                                                                                                • Key points
                                                                                                                  • Social media compliance technology
                                                                                                                    • Actiance
                                                                                                                      • Erado
                                                                                                                        • Arkovi
                                                                                                                          • New attempts to woo women
                                                                                                                            • Wells Fargo
                                                                                                                              • Charles Schwab
                                                                                                                                • Barclay’s Wealth
                                                                                                                                  • Citi Private Bank
                                                                                                                                  • Marketing Strategies

                                                                                                                                    • Key points
                                                                                                                                      • Advertising spending is increasing
                                                                                                                                        • Figure 17: Top 10 advertising categories, 2009-10*
                                                                                                                                      • Online advertising is expected to increase
                                                                                                                                        • Figure 18: U.S. online spending by industry, 2009-15
                                                                                                                                      • Online videos could help to build client relationships
                                                                                                                                          • Figure 19: Video-sharing site users, by demographic category, 2011
                                                                                                                                        • Experian is largest financial services online marketer
                                                                                                                                          • Figure 20: Top 10 online marketers in financial services (number of image-based ad impressions)
                                                                                                                                        • Interactive marketing is the wave of the future
                                                                                                                                          • Figure 21: U.S. interactive marketing spend by industry, 2011-16
                                                                                                                                        • Incentives are being increasingly used
                                                                                                                                          • Print advertising
                                                                                                                                            • Figure 22: Suntrust print ad, 2012
                                                                                                                                            • Figure 23: HSBC print ad, 2012
                                                                                                                                            • Figure 24: Edward Jones print ad, 2011
                                                                                                                                            • Figure 25: State Farm print ad, 2011
                                                                                                                                          • Direct mail advertising
                                                                                                                                            • Figure 26: Fidelity direct mail ad, 2011
                                                                                                                                            • Figure 27: Fidelity direct mail ad, 2011
                                                                                                                                            • Figure 28: Vanguard direct mail ad, 2011
                                                                                                                                            • Figure 29: T. Rowe Price direct mail ad, 2011
                                                                                                                                          • Online and email advertising
                                                                                                                                            • Figure 30: HSBC online ad, 2012
                                                                                                                                            • Figure 31: Ameritrade online ad, 2012
                                                                                                                                            • Figure 32: Ameritrade email ad, 2012
                                                                                                                                            • Figure 33: Fidelity Investments online ad, 2012
                                                                                                                                            • Figure 34: Vanguard email ad, 2012
                                                                                                                                            • Figure 35: Ameritrade email ad, 2012
                                                                                                                                        • Adviser Usage

                                                                                                                                          • Key points
                                                                                                                                              • Figure 36: Type of advisor used, by gender, December 2011
                                                                                                                                              • Figure 36: Type of advisor used, by age, December 2011
                                                                                                                                              • Figure 37: Type of advisor used, by household income, December 2011
                                                                                                                                            • Fee-based vs. commission-based
                                                                                                                                              • Figure 38: Advisors fee-based or commission-based, by gender, December 2011
                                                                                                                                              • Figure 39: Advisors fee-based or commission-based, by employment group, December 2011
                                                                                                                                            • Percentage of assets with advisor
                                                                                                                                              • Figure 40: Percentage of assets with advisor, by gender, December 2011
                                                                                                                                              • Figure 41: Percentage of assets with advisor, by age, December 2011
                                                                                                                                          • Trust in Institutions When Providing Advice

                                                                                                                                            • Key points
                                                                                                                                              • Does familiarity lead to greater levels of trust?
                                                                                                                                                • Figure 42: Degree of trust in advice from various types of financial institutions, by gender, December 2011
                                                                                                                                                • Figure 43: Degree of trust in advice from various types of financial institutions, by age, December 2011
                                                                                                                                                • Figure 44: Degree of trust in advice from various types of financial institutions, by household income, December 2011
                                                                                                                                              • How people found their current advisor
                                                                                                                                                • Figure 45: Means of finding current advisor, by gender, December 2011
                                                                                                                                                • Figure 46: Means of finding current advisor, by age, December 2011
                                                                                                                                            • The Consumer—Attitudes About Investing and Advisors

                                                                                                                                              • Key points
                                                                                                                                                • Clear concerns about commission-based advice
                                                                                                                                                  • Figure 47: Importance of fee-based or commission-based payment, by gender, December 2011
                                                                                                                                                  • Figure 48: Importance of fee-based or commission-based payment, by age, December 2011
                                                                                                                                                  • Figure 49: Importance of fee-based or commission-based payment, by household income, December 2011
                                                                                                                                                • Who has switched advisors?
                                                                                                                                                  • Figure 50: Respondents who switched advisors, by age, December 2011
                                                                                                                                                • Trust in own advisor
                                                                                                                                                  • Figure 51: Degree of trust in current financial advisor, by education, December 2011
                                                                                                                                                  • Figure 52: Degree of trust in current financial advisor, by household income, December 2011
                                                                                                                                                • Trust in most advisors
                                                                                                                                                  • Figure 53: Trust in financial advisors in general, by age, December 2011
                                                                                                                                              • The Consumer—Interactions with Advisors

                                                                                                                                                • Key points
                                                                                                                                                  • A distinct lack of personal contact
                                                                                                                                                      • Figure 54: Frequency of meeting with retirement plan advisor, December 2011
                                                                                                                                                      • Figure 55: Retirement plan access and participation, defined benefit and defined contribution, March 2010
                                                                                                                                                    • Communication with advisor
                                                                                                                                                      • Figure 56: Satisfaction with communication from advisor, by age, December 2011
                                                                                                                                                    • Feeling like a valued client
                                                                                                                                                      • Figure 57: Satisfaction with the degree to which they are made to feel like a valued client, by age, December 2011
                                                                                                                                                    • Would they switch?
                                                                                                                                                      • Figure 58: Would switch advisors if another paid more attention to concerns, by age, December 2011
                                                                                                                                                    • Satisfaction with advisor
                                                                                                                                                      • Figure 59: Satisfied with advisor, by gender, December 2011
                                                                                                                                                    • Preferences for individual decision making vs. using an advisor
                                                                                                                                                      • Figure 60: Preference for making own investment decisions, by gender, December 2011
                                                                                                                                                      • Figure 61: Preference for making own investment decisions, by age, December 2011
                                                                                                                                                      • Figure 62: Preference for making own investment decisions, by household income, December 2011
                                                                                                                                                    • Comfort in asking for financial advice
                                                                                                                                                      • Figure 63: Feels comfortable asking for financial advice, by gender, December 2011
                                                                                                                                                      • Figure 64: Feels comfortable asking for financial advice, by age, December 2011
                                                                                                                                                    • Degree of advisor vs. individual decision making
                                                                                                                                                      • Figure 65: Involvement in financial decisions, by household income, December 2011
                                                                                                                                                      • Figure 66: Involvement in financial decisions, by age, December 2011
                                                                                                                                                  • Change in Household Financial Situation

                                                                                                                                                    • Key points
                                                                                                                                                      • Putting the recession into context
                                                                                                                                                        • Figure 67: Perception of financial situation over past five years, by gender, December 2011
                                                                                                                                                        • Figure 68: Perception of financial situation over past five years, by age, December 2011
                                                                                                                                                    • Appendix—Trade Associations

                                                                                                                                                      Companies Covered

                                                                                                                                                      • Bank of America Corporation
                                                                                                                                                      • LPL One Ltd
                                                                                                                                                      • Merrill Lynch & Co. Inc

                                                                                                                                                      The Financial Advisor Channel - US - March 2012

                                                                                                                                                      £3,199.84 (Excl.Tax)