Independent RIAs Weigh in on What’s Ahead in 2017

January 10, 2017

1/9/2017

TD Ameritrade Institutional

RIA Sentiment Survey

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RIA optimism highest since 2009

More than half of independent registered investment advisors (“RIAs”) say they feel good about the

global economy, and seven out of 10 are optimistic on the US economy.

They are bullish on the US stock market and in particular, expect financials to do well under the

incoming Trump administration.

They’re watching interest rates and corporate earnings for their impact on client portfolios, and are

paying attention to the new administration and to oil as well.

RIAs use equity index and sector ETFs the most, and say that the quality of the underlying index is

the #1 reason to choose an ETF, followed by performance and total cost.

Enthusiasm for the new year comes on the heels of a successful 2016

In 2016, three out of five RIAs saw revenues increase, seven out of 10 had client assets increase,

and more of the same is expected for this year.

Nearly a third of new clients come to RIAs from full-commissioned brokers, followed by self-directed

investors seeking help from an RIA.

Though RIAs saw their tech spending increase the most in 2016, they say they’ll give their marketing

budgets the biggest boost in 2017 to achieve growth.

RIAs are ramping up marketing to fuel growth in 2017

Marketing is one of this year’s top three management initiatives among RIA firms

Marketing is to be the top business strategy for attracting clients of all ages and stages.

RIAs are using technology to improve the client experience, whether by investing in performance

reporting or financial planning tools, or by moving to e-signature or cloud based solutions.

RIAs are taking the changing competitive landscape in stride

More than eight out of 10 RIAs say they aren’t all that concerned about the ability of robo-advisors to

upend their client base.

Similarly, independent RIAs say they are ready for the April 10 deadline for compliance with the new

DOL conflicts of interest rule.

They’re taking business continuity planning seriously: 57% have finished plans and 32% have some

type of plan in the works.

RIAs on the Economy and Markets

61/9/2017

54% 69%

RIAs feel good about the economy

71/9/2017

Base: Total Respondents (n=306)

Q3. Looking ahead to the next six months, what is your outlook for the global economy through the first half of 2017? Would you say it is very

pessimistic, somewhat pessimistic, neutral, somewhat optimistic or very optimistic?

Q4. Again, looking ahead to the next six months, what is your outlook for the U.S. Economy through the first half of 2917?

2017 Outlook on Economy

9% 8%

36%

23%

45%

54%

9%15%

Global Economy Outlook US Economy Outlook

Very Optimistic

Somewhat Optimistic

Neutral

Somewhat Pessimistic

Very Pessimistic

Very Optimistic

Somewhat Optimist

Neutral

Somewhat Pessimistic

Very Pessimistic

15%

RIA optimism for the US economy is high

Trend in U.S. Economic Outlook

81/9/2017

Base: Total Respondents (n=306)

Q4. Again, looking ahead to the next six months, what is your outlook for the U.S. Economy through the first half of 2017?

In 2017, "Very Optimistic"

surged to 15%, the highest

recorded by this annual

benchmarking survey

RIAs are bullish on equities

Base: Total Respondents (n=306)

Q5. What is your outlook on the U.S. stock market through the first half of 2017? Do you think the stock market will… ?

Q6. What is your outlook on the U.S. bond market through the first half of 2017? Do you think the bond market will…?

9

1/9/2017

2017 Market Outlook: Stocks vs. Fixed-Income

Increase Remain / Same Decline

70%

12%

22%

35%

8%

53%

BondsStocks

101/9/2017

Base: Total (n=306)

Q8. With a new president soon taking office, what's your outlook for these sectors?

RIAs see most gains in financials, industrials & materials

Equity Sector Performance Outlook Under New Administration

Better Same Worse

Consumer Discretionary

Consumer Staples

Financials Materials Industrials Energy

Health Care IT Telecoms Utilities

111/9/2017

Base: Total (n=306)

Q7. Which of the following headlines are you watching for their potential impact on client portfolios?

RIAs are watching interest rates, corporate earnings

Factors Impacting Client Portfolios

Unemployment Potential China Slowdown Middle East Strife

Rate Increase Corporate Earnings Incoming Administration Oil/Gas Prices

Apply Now

121/9/2017

RIAs are keeping client assets diversified

Base: Total Respondents (n=306)

Q9. Approximately what percentage of assets that you manage for clients today is allocated to the following asset categories? (Mean with zero included)

Q10. Approximately what percentage of assets that you manage for clients today is allocated to the following asset categories Equities? (Mean with zero included)

Q11. Approximately what percentage of assets that you manage for clients today is allocated to the following asset categories Fixed Income? (Mean with zero included)

Equities

Fixed Income

Average Percent of Assets in Each Category

Corporates, 42%Government, 26%

Municipals, 20%International, 9%

Other, 3%

Spotlight on Exchange-Traded Funds (ETFs)

131/9/2017

14

Base: Total (n=306)

Q48. What are your top reasons for buying or switching ETFs?

Asset allocation is the top reason advisors use ETFs

Top 5 Reasons RIAs use ETFs

Liquidity

Transaction Costs

Asset Allocation

Lower Costs of ETFs

Access New Asset Classes

15

Base: Total (n=259)

Q50: How frequently do you use these ETFs in client portfolios…?

RIAs favor equity index and sector ETFs for clients

Frequency of ETF Usage in Client Portfolios

Smart-Beta/

Fundamental Index Inverse/Leveraged

SometimesAlways Rarely/ Never

16

Base: Total (n=259)

Q49: What's the #1 factor influencing your decision to purchase a specific ETF?

Index quality is top factor when RIAs choose ETFs

What's the #1 Factor Influencing Your Decision to Purchase a Specific ETF?

1%

2%

6%

8%

14%

15%

35%Quality of the

Underlying Index

Performance

Total Costs

Liquidity of the ETF

Trading Costs

Brand

Tracking Error

Expense Ratio

20%

15%

14%

8%

6%

2%

1%

RIAs on Growth

171/9/2017

20162016

18

RIAs increased clients and revenue last year

New Client Growth - Past Six Months Revenue Growth - Past Six Months

Q15: Has the total number of clients served by your firm decreased, increased, or remained about the same over the past 6 months? (n=306)

Q16: ...By approximately what percentage has your firm's client base grown? Base: Those who increased clients (n=172)

Q21. Over the past six months, has your firm's revenue decreased, increased or remained the same? (n=306)

Q22. …By approximately what percentage has your firm's revenue grown? (n=184)

Remained about the same

Decreased

Increased

Average Growth Rate: 17%

vs 13% at the end of 2015

Average Growth Rate: 16%

vs 14% at the end of 2015

19

RIAs also increased assets under management

AUM Growth – Past Six Months AUM Outlook for 2017

Q15: Has the total number of clients served by your firm decreased, increased, or remained about the same over the past 6 months? (n=306)

Q16: ...By approximately what percentage has your firm's client base grown? Base: Those who increased clients (n=172)

Q21. Over the past six months, has your firm's revenue decreased, increased or remained the same? (n=306)

Q22. …By approximately what percentage has your firm's revenue grown? (n=184)

Remained about the same

Decreased

Increased

Average AUM Growth Rate

17% in late 2016, versus 15%

in year-ago period

20

Base: Total (n=306)

Q24: Over the past six months, from which type of competitor did the majority of your firm’s new client assets come?

Most new RIA clients came from commissioned brokers

2016

2017

6%

10%

13%

Full-commission brokers

Other RIAs

Banks

Self-directed investors

Clients who are new to investing

Merger, acquisition, or new advisor

onboarding*

Other places

*Asked for first time in 2017

Sources of New Clients – Past Six Months

21

Base: Total (n=306)

Q33: In 2016, in which of the following areas did your firm see the biggest increase in spending?

Q34: In 2016, in which of the following areas did your firm see the biggest decrease in spending?

Most RIAs said they spent more on technology…

* % of RIA Firms with a change

2016

RIAs Say Biggest Decreases in

Spending Were on...

33%

22%

15%

RIAs Say Biggest Increases in

Spending Were on...

Technology

Legal/

Compliance

Marketing

21%

17%

16%

Hiring/HR

Legal/

Compliance

Real Estate/

Related

… and cut back on hiring, real estate, legal and compliance

221/9/2017

Where Do RIAs Intend Increase Their 2017 Spending?

Base: Total (n=306)

Q35: In 2017, in which of the following areas do you expect your firm will realize the biggest increase in spending?

Marketing, technology are top priorities for higher

2017 spending

Marketing Technology Hiring/ HR Legal / Compliance

Client Relations Professional Development Real Estate Real Estate Outsourcing

Economy

Managing Firm Growth

Regulation

Average Client Age*

Succession Planning

Hiring/ Retaining Talent

Competition*

Technology*

The economy seen as impacting RIAs the most

231/9/2017

Base: Total (n=306)

Q13. Which of the following has the potential to have the greatest impact on your firm in 2017?

What Will Have the Biggest Impact on Your Firm?

* Not asked in 2015

Regulators seen as top threat to RIA firm growth

241/9/2017

Base: Total (n=306)

Q14. What are the top competitive threats to your business growth in 2017?

When asked what were the top competitive threats to the

growth of their firms, RIAs responded…

25

Base: Total (n=306)

Q32: Which of the following operational and business management initiatives are you currently implementing or planning to implement in 2017 to help your firm

grow? (Multiple responses accepted)

Marketing is among top priorities for RIAs in 2017

Operational / Management Initiatives Planned for 2017

Improve Efficiency Enhance Client Experience Marketing/ Social Media Invest in technology

Compliance Staff Development Merger and Acquisition Real Estate Outsourcing

26

Base: Total (n=306)

Q36: In 2017, which of the following new business strategies do you plan to pursue to attract new clients? (Multiple responses accepted)

Marketing is Top New Business Strategy for 2017

Planned Strategies for Attracting New Clients

*New in 2017

2017

2016

27

Base: Total (n=306)

Q37: Which of the following best describes your main planned strategy for attracting younger investors as clients?

RIAs will shift marketing to win next gen clients

Planned Strategies to Attract Younger Clients

Not currently working on strategy

Lower asset minimums

Change networking/marketing

Manage 401k plans

Hire younger advisors

Low Cost/ Robo

28

Base: Total (n=306)

Q39: Which ONE of the following technologies are you considering investing in most to help drive your growth in 2017?

Tech investments aim to improve the client experience

Technologies Under Consideration in 2017

29

Base: Total (n=306)

Q40: Which of the following advanced technology services or applications are you interested in introducing to your practice in the upcoming year? (Multiple

responses accepted)

When it comes to new tech, RIAs express most

interested in e-signature

Advanced Technologies Under Consideration for 2017

Aggregation

Rebalancing

Social Media

Video Chat

Cloud-Based Solutions

Mobile Payment

and Deposits

Robo

Advisor

E-Signature

RIAs on the 2017 Industry Landscape

301/9/2017

Not at all / Not

Very Concerned

31

Base: Total (n=306)

Q43: How concerned are you that "robo-advisors" pose a threat to your firm?

Base: Those extremely concerned (rated Q43 as 1-8 on 10 pt. scale) (n=300)

Q44: Why don't robo-advisors pose a significant threat to your firm?

Eight in 10 RIAs not overly concerned about robos

RIA Concern over Robo-Advisors

We attract a

different type of

client

Our growth has not

been impacted

Clients haven't

expressed any interest

in them

We are winning

business from

robos

We have launched our

own robo-offering

No significant

differences

compared to

2016 and 2015

Why Robo-Advisors Aren't a Threat

53%

2%

17%

28%

53%

Not at all

concerned

Not very

concerned

Somewhat

concerned

Extremely

concerned

81%

32

Base: Total (n=306)

Q45: How was the new DOL fiduciary rule impacted your business? (Multiple responses accepted)

Most RIAs say DOL rule has not impacted their firms

How Has the New DOL Fiduciary Rule Impacted Your Business?

M&A

Adding staff / retirement plans

Business as usual

Higher Legal/

Compliance

Expanding

retirement business

Exiting retirement business

Selling the firm

33

Base: Total (n=306)

Q26: Do you have a formal, documented business continuity and transition plan in place?

Q27: Are you aware of the SEC's proposed rule that would require RIAs to adopt and implement business continuity and transition plans (Rule 2006(4)-4)?

Continuity plans are underway, if not completed

Status of Business Continuity Plans Awareness of Proposed SEC Rule

206(4)-4 to Require Such Plans

Methodology

Results are based on a telephone survey, conducted by MaritzCX on behalf of TD

Ameritrade Institutional, a division of TD Ameritrade, Inc., between Nov. 14 and

Dec. 5, 2016.

306 independent registered investment advisors (RIAs) participated in this study.

Participants, both clients of TD Ameritrade Institutional and non-clients, were

asked to share their views on economy, the outlook for their firms and the RIA

market overall.

The margin of error is ± 5.6%. This means that in just over one case out of 20,

survey results based on 300 respondents will differ by not more than 5.6

percentage points in either direction from what would have been obtained by

seeking the opinions of all eligible RIAs.

MaritzCX and TD Ameritrade and separate and not affiliated and not responsible

for each other's services or policies

34