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Tax cuts sustain bullish outlook among US RIAs, says TD Ameritrade survey

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Company earnings and interest rates may drive the markets, but the new US tax plan will impact individual investors the most in 2018, according to a survey of independent registered investment advisors (RIAs) by TD Ameritrade Institutional.

In the TD Ameritrade Institutional 2018 RIA Sentiment Survey, RIAs also say they expect their own businesses to keep booming this year, cementing a decade of strong growth since the global financial crisis.
 
The survey also reveals that seven-in-10 RIAs are carrying over last year’s exuberance for the US and global economies into 2018, perhaps bolstered by the highs reached by all major market indices in 2017.
 
These advisors predict the financials, materials, industrials and technology sectors will get the biggest boost. About half say equities have more room to run, and a similar amount expect bonds to decline in the current interest rate environment.
 
But RIAs surveyed recognise that everyone may not share their rosy outlook for 2018. They report that their clients are most concerned about retirement issues, followed by taxes and estate planning issues.
 
“Looking ahead to 2018, RIAs generally like what they see – for their clients and for themselves,” says Vanessa Oligino, Director, Business Performance Solutions, TD Ameritrade Institutional. “And when it comes to capitalising on the current climate for their clients, independent advisors increasingly look to ETFs as their investment vehicle of choice.”
 
Three hundred RIAs overseeing USD161 million in client assets, on average, participated in the latest annual sentiment survey, which was fielded between 27 November and 7 December, 2017, during Congressional negotiations on tax legislation.
 
When it comes to investing client assets, more than half of independent RIAs say they use ETFs more than mutual funds or individual stocks.
 
A third say assets for new ETF investments will come from cash in 2018, and 27 per cent say they will come from the sale of mutual funds. RIAs are less apt to sell stocks to fund new ETF purchases, however: just 9 per cent say the sale of individual securities will fund new ETF investments.
 
Although factors such as performance and total costs are important, advisors say the construction of the underlying index is the main reason they chose a particular ETF.
 
This year’s survey also revealed that most RIAs do not buy or switch ETFs simply because new offerings have been introduced by a particular sponsor. Instead, advisors say their selections are guided by asset allocation strategies or lower costs.
 
For much of the past decade, the RIA industry has enjoyed growth amid the second-longest bull market since World War II. As they look ahead, advisors surveyed are forecasting more of the same in 2018. Seventy-eight per cent expect their firm’s assets under management to rise in 2018 and nearly half say assets will grow faster than they did in 2017.
 
These sunny projections come on the heels of a largely successful 2017. RIAs report that during the latter half of the year, revenues grew on average by 15 per cent, while assets under management grew by 16 per cent.
 
Sixty-five per cent of RIAs gained new clients last year, for an average growth rate of 16 per cent. Advisors say their biggest pipeline for new clients remains the full-service brokerage firms: investors leaving national full-service broker-dealers made up more than a third of their new clients in 2017.
 
Growth takes investment, and RIAs are committing resources to developing their firms. Last year, technology as well as legal and compliance matters dominated firm spending. RIAs predict they will make their biggest investments in marketing and hiring in 2018, in keeping with their top strategic priorities: marketing and enhancing the client experience.
 
These RIAs say that technology investments that will improve their client experience – such as digital documents and e-signature, and CRM tools – are on the table for 2018.
 
Could anything trip up their momentum in 2018? Advisors say regulations are their biggest potential roadblock as well as a lack of consumer awareness about what makes independent RIAs different from other financial services providers.
 
Just 1 per cent of survey respondents are extremely concerned about the threat of robo-advisors on their business.
 
“RIAs naturally want to sustain their recent success, but they can’t just sit back and expect tailwinds to propel their growth,” says Oligino. “Though the competitive landscape has never been more heated, we see many independent advisors doing what’s needed to help their long-term future.”
 

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