Among advisory services competing for the wealthiest clients, RIAs and multi-family offices are winning.

That's the conclusion of a recent Cerulli report, which found that, among clients investing $5 million or more, investable assets under management at RIAs and multi-family offices jumped a whopping 19% to nearly $500 billion in 2011.

What’s more, Cerulli expects the trend to continue, estimating that investable assets in the high- and ultrahigh-net-worth segment will be found to have risen to nearly $600 billion in 2012.

While rising equity market performance could account for some of the asset growth, other segments saw much smaller increases. The second-largest percentage increase in the high-net-worth market segment was in the retail direct sector serving individual investors, with a nearly 10% increase to $300 billion total, up from $274 billion, according to Cerulli. Retail broker-dealers registered a 6.46% increase to $127 billion, up from $119 billion.

While wirehouses controlled the most assets in the market segment, at nearly $2 trillion, they saw assets decline by more than 4% from 2010 to 2011.


One issue for the ultrawealthy has been a growing awareness of fiduciary standards. “There has definitely been a growing awareness in the last few years among sophisticated investors regarding who is a fiduciary and who is not,” said Mindy Rosenthal, executive director of the New York-based Institute for Private Investors, an organization whose members belong to wealthy families with an average of $200 million in investable assets. “They see a potential benefit to being represented by an RIA because they have to adhere to a fiduciary standard.”

Shirl Penney, president and chief executive of Dynasty Financial Partners -- the New York-based platform provider whose rapid growth has been fueled by catering to catering to high-end wealth advisors and multi-family offices -- agreed. “Client awareness of the fiduciary model is growing,” Penney said.

More broadly, clients with more than $5 million to invest are attracted to the independent business model of most RIAs and multi-family offices, noted Donnie Ethier, senior analyst at Cerulli. Cerulli breaks the high-net-worth market into three tiers, Ethier said: investable assets of $5 million to $10 million; $10 million to $20 million and the ultrahigh-net-worth tier of $20 million plus.

“The people who are on the high end of the wealth spectrum didn’t get there by accident,” Ethier said. “Most of them became rich by taking on risk. They want more control of their assets, and they don’t want to be confined to proprietary products. They want to be able to use external asset managers, and they also like the fact that RIAs aren’t part of a large corporation, because they can relate to someone running their own business.”


Multi-family offices, most of which are also registered investment advisors, have the added advantage of being able to provide a “high-touch level of service” to wealthy clients, Ethier said.

Wealthy families also like the fact that these offices are able to bring large families together with expertise in family governance, education and meetings, he continued.

“They’re able to create a bond with the next generation that makes it less likely the younger members of the family will leave for a wirehouse,” Ethier says.


Yet Rosenthal cautioned that the appeal of wirehouses shouldn’t be underestimated. Despite the recent decline, wirehouses still have four times as many assets in the high-net-worth segment as do RIAs.

“Wirehouse brokers aren’t on the same side of the table as the client, but their job is to present the client with opportunities and access to deals,” she noted. “They are paid on commission and it is very much in their interest for the client to do well, or they won’t get repeat business.”

Advisors should also be wary of the growing popularity of the self-directed channel, Ethier said. “Many wealthy investors are used to doing things themselves, and feel they are more than capable of making their own decisions, especially when it’s so easy on the Web,” he said. “And younger investors grew up on the Web.”

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