“We see RIAs increasing market share by 0.5% to 1% a year,” said Scott Smith, an associate director at Cerulli. “as the full-service firms experience an erosive but not a catastrophic decline.”
From 2008 through 2011, RIAs’ holdings of retail investor assets grew by nearly 50%, to over $1.3 trillion, according to a Cerulli report. Dually-registered advisors (RIA and independent broker-dealer) enjoyed even faster growth, increasing assets by more than 140%, to $883 billion. By contrast, total retail channel assets grew by 28.5%, to $22.4 trillion, as markets recovered from the 2008-2009 crash. Some channels, including insurance-only agents, direct from product manufacturer, and bank broker-dealers, lost assets in those three years, according to Cerulli’s latest annual report on retail investor product use nationally.
“The industry has been experiencing a long-term shift of advisors and assets away from traditional employee advisor channels, such as wirehouses and banks, toward more independent channels, in this case RIAs and dually registered advisors,” the report concluded. “This transition is largely being driven by advisors’ desires to operate their practices as they feel best suits them, and to increase their percentages of the revenue they generate that they actually get to keep.”
Therefore, the key to recent RIA/dually-registered asset growth has been the move of successful producers into those channels from other types of firms.
“The widespread growth of technology platforms has been driving this trend,” Smith said. “Advisors can move into the independent world and still step up their game, offering investments and advice that rival anything a full-service firm can offer. There is now much less resistance among advisors to making such a transition.”
In fact, abandoning a large firm may offer added benefits. Many name-brand firms have been hit by negative news coverage, Smith said, while the firms that work with RIAs have suffered less. Meanwhile, some high-profile scams have left many investors wary about who is holding their money.
“Now, an independent advisor is able to avoid the association with a firm that’s been dragged through the mud yet still assure clients that their assets are custodied with a well-known, well-regarded company,” he said.
Other factors may help RIAs continue to gain share, Smith said, such as the increased possibility they will offer the low-cost investments that clients increasingly prefer.