While the flexibility of independent advisory models is drawing advisors in, a lack of trust in large financial institutions may be pushing investors away from big Wall Street firms and into the arms of independent advisors.
This push-and-pull effect has advisors and clients gravitating toward the RIA and dually registered advisory channels a trend that is expected to continue in coming years as independents gain marketshare, according to a recent report from Boston-based global analytics firm Cerulli Associates.
"This business has a bright future," says Matt Lynch, a principal at Tiburon Strategic Advisors in Northern California, referring to the burgeoning independent advisory channel.
Indeed, Cerulli projects that independent and dually registered RIAs will reach a 26% marketshare in assets by the end of 2016 compared to 21% today. According to the report, both RIA channels have seen assets rise over the five-year period ending in 2012, with independent assets growing 8.8% and dually registered RIA assets growing 7.2%.
Cerulli attributes the momentum toward independent channels in part to advisors seeking greater independence. "More advisors are attracted to the flexibility of the RIA model," says Kenton Shirk, an associate director for Cerulli. "The RIA model has proven that it has staying power."
In January, Cerulli released another report showing that the dually registered channel, which includes advisors who operate their own RIA practice while also affiliating with an independent broker-dealer, saw a 21.5% rise in assets and surpassed $1 trillion for the first time in 2012. This compares to 11.5% growth in assets the RIA-only channel. Advisor headcount at these dually registered firms has also gone up from 2.6 advisors per practice in 2007 to 5.4 in 2012.
Breakaway brokers" have helped fuel RIA asset growth with advisors switching from wirehouses to fee-only models, a trend most prevalent between 2009 to 2011, Shirk adds. He forecasts that though still substantial, the exodus from brokerage houses over the next two years wont reach the post-crisis levels.
But advisors choosing independence isnt the only reason the RIA models are gaining marketshare. Investors are driving assets in that direction as well. "The asset growth and share gain of the RIA channel has been so strong that it cannot solely be attributed to advisors choosing the independent business model," Shirk explains. "Clients have also increasingly been choosing to hold their assets with an independent advisor."
This trend is predominantly due to the role of large banks in the financial crisis and the resulting distrust among clients, Cerulli says.
Lynch, concurs, saying that much of the shift toward RIAs is "market-driven" due to client demand. "There is an attraction to a fee-based model and the more transparency that comes with it."
- Dually Registered Channel Assets Growing Fastest, Study Finds
- RIA Share to Rise: Cerulli
- Wirehouses Set to Lose Share: Cerulli