What is the fastest growing financial services market and distribution channel? According to Tiburon Strategic Advisors, it's the fee-based financial advisory market.
According to Tiburon, the fee-based advisory business emerged in the 1980s, signaled by the founding of the National Association of Personal Financial Advisors (1983) and the launch of Schwab Institutional, Financial Advisor Services (1987). The most recent highlights mentioned in this July 2012 report were Bank of New York Mellon's Pershing Advisor Solutions winning Citigroup's business to support its RIA referral network in 2010 and the shift of fee-based financial advisors with $25 million to $100 million in assets under management to state supervision in 2011.
RIA growth was spurred by the dot-com boom at the end of the last century. From 1996 to 2001, the number of fee-only financial advisors grew by nearly 50%. Tiburon now puts the number at 22,385, "relatively flat" since 2001.
Nevertheless, asset growth has been robust. "Fee-based financial advisors have $2.0 trillion assets under management, up nearly 40% since 2005," Tiburon asserts.
If that's the history of the RIA market, what does the future hold? Here are Tiburon's findings for the fee-based financial advisory market:
Continued Robust Growth
Over three-quarters of fee-based financial advisors expect to growth their client assets by 10% or greater per annum over the coming three-to-five years. Larger fee-based financial advisors expect to defy the law of large numbers by growing at a faster rate than smaller fee-based financial advisors.
"Larger fee-based financial advisors have good reason to predict faster than average growth in the future for three reasons," Chip Roame, Tiburon's managing partner, told Financial Planning. They are:
- Large fee-based financial advisors often became large by having superior marketing programs. Examples include Fisher Investments, Mutual Fund Store, and Edelman Financial Group. All are superior marketers, according to Roame.
- Large fee-based financial advisors often get the largest clients. "Large clients make fast growth possible as they are not as time-demanding per asset dollar," Roame said.
- Large fee-based financial advisors are in a position to recruit more financial advisors and/or acquire smaller businesses. Both of these strategies can add to their growth rate, when compared to smaller firms.
"Because of those three factors (marketing strategies, larger clients, and acquisition positioning), we expect the largest firms to outgrow the smaller firms," Roame said.
Currently, the three largest fee-based financial advisor custodians serve over 67% of fee-based financial advisors.
Mutual funds and individual stocks and bonds now account for nearly all of RIA assets under management. Tiburon see growing use of ETFs, alternative investments, and wealth management products.
Technology & Outsourcing
Fee-based financial advisors will increase their use of turnkey asset management programs (TAMPs).
Fee-based financial advisor mergers and acquisitions are up over 600% since 1999, with 81 deals taking place in 2007. Fee-based financial advisor mergers and acquisitions will increase to 163 per year by 2012.