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'Cultural Cues' From Schwab’s Spring 2023 Independent Advisor Outlook Study

Growth at what cost?

When running a growing RIA, it’s crucial to stay abreast of trends and opportunities in an increasingly evolving business landscape. Schwab’s Spring 2023 Independent Advisor Outlook Study (IAOS) reports insightful perspectives of 862 independent investment advisors who custody a total of $359 billion in Assets Under Management (AUM) with Schwab Advisor Services. The IAOS also highlighted qualitative interviews with eight industry subject matter experts (SMEs) from three Schwab leaders and five third-party participants who shared their individual perspectives of trends independently of the qualitative survey.

While the survey provided insightful content on navigating the complexity of growth, harnessing the use of data, balancing automation and personalization, and managing client-centered relationships, there was a significant statistic that leaped off the page. The "Growth" section revealed that “But as they [firms] are growing, three-quarters of advisors report it gets harder to maintain their company culture.” This material observation represented the only reference to company culture. My finding piqued my curiosity regarding how IAOS addressed cultural cues for the benefit of advisors seeking insight and best practices.

Defining Culture and Measuring the Impact on Firm Growth

In Denise Lee Yohn’s 2021 Harvard Business Review article, “Company Culture Is Everyone’s Responsibility,” she defines company culture ​​as “the ways people in the organization behave and the attitudes and beliefs that inform those behaviors (i.e., “the way we do things around here”) —including formal, stated norms as well as implicit ways people work and interact.” This definition reflects a firm’s business ecosystem driven by the views and actions of its leaders and the corresponding engagement from the firm’s employees and clients. If maintaining a firm’s company culture poses a stumbling block, it brings into question the effectiveness of IAOS' designated areas of the ecosystem: growth (business strategy), data and tech use (operations) and client engagement (business sustainability).

Let’s start with the "Growth" summary. Surveyed advisors reported material confidence in managing competition from a growing number of RIAs by attracting talent and offering differentiated services to prospective clients. The highlighted growth landscape–long-term investing, increased risk-taking, scaling, operational complexity and centralized control by leadership–sheds light on the cultural challenge of integrating new employees and clients into myriad moving targets. This cultural cue signals a strategic question: “growth at what cost?”

Imagine newly onboarded clients and employees at RIA firms demanded data related to managerial aptitude, employee engagement, training programs and employee exit surveys. What would this data imply about the cultural health and sustainability of the firm relative to its financial condition? What is the cost of employee and client turnover and which employee levels are impacted the most? According to Gallup, the cost of replacing an employee may range from one-half to two times the employee's annual salary.

How Culture Influences Data Use

When bringing data into the equation, the IAOS reported insights largely pertaining to servicing clients and streamlining operational processes. Improved portfolio management, client communication and operational efficiencies ranked high among surveyed advisors in how they currently use data to support their business strategy. The next frontier of data use spans identifying unmet client needs, anticipating clients’ best steps and driving lead generation activities.  

RIAs servicing clients that desire deeper engagement and managing employees who feel disconnected from the firm and its culture expose themselves to financial and business risk. Apathy, frustration and disengagement mound when employees lack insight on the “why” and “how” of their duties. These conditions compound when leaders allow growth to consume the time and energy necessary to nurture its culture and its greatest asset–its people.

The next generation of advisors, Gen Z, may reject cultural deficits in professional development and exposure. In a 2022 ThoughtExchange Gen Z at Work report, 96% of respondents reported that feeling valued, included and empowered at work is important to them. But, Gen Zers who desire guidance from millennial colleagues may be out of luck. Deloitte’s Burnout Survey highlights that 84% of millennials surveyed experienced burnout at their current job, compared with 77% of all respondents, with nearly half of millennials leaving a job due to burnout, compared with 42% of all respondents. This leaves generations preparing for retirement, namely Gen X and baby boomers, in a lurch with preparing millennials and Gen Z to take the helm in servicing clients and running a sustainable business.

Navigating Cultural Transition From Investment Portfolio to Individual Personalization

Sections III and IV, "Personalization and Automation” and “Client Relationships,” confirmed the industry’s comfort with portfolio management with personalized portfolios and related automated areas (i.e., statements, income distributions and portfolio alerts). Aspects related to financial advice–financial plans, personalized client experiences and client meetings–ranked low on automation and were nonexistent in the “Client Relationships” section. The data suggests an extreme comfort level with portfolio construction and charitable giving with low interest in investments related to alternatives, ESG investing, and digital assets and cryptocurrency.

The cultural entrenchment on offering a limited investment management scope of service runs contrary to Accenture’s Wealth Management Consumer Report: The New State of Advice. The report indicates that 80% of Gen Z and 63% of millennial investors were more than twice as likely as baby boomers show interest in ESG investing. Regarding advice, almost 90% of clients with $10 million or more felt their advisor’s advice was too generic. When asked “What qualities are most important in the client relationship?" 91% of respondents indicated an advisor who “gets” them.

The RIA of the Future

The IAOS concludes with asking the SMEs, “What’s next for the RIA Industry?” Maintaining company culture remains a critical consideration in optimizing business value and sustainability. RIA leaders run the risk of declining relevancy among employees and clients when strategy and practices nullify the engagement of these important stakeholders. It is these groups that clearly voice what is next for the RIA Industry. The question remains which RIA firms will take heed to the cultural cues.

Lazetta Rainey Braxton is the founder/CEO of Lazetta & Associates and co-CEO at 2050 Wealth Partners.



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