RIAs Again Fastest-Growing Channel in Wealth Management

Independent advisor market share will continue to increase over the next few years, Cerulli finds

Happy days are here again — sort of.

New research from two well-known market metric firms, Aite Group and Cerulli Associates, finds the RIA channel is once again the fastest growing segment of the wealth management space.

Aite found the industry as a whole had “finally caught up to its pre-crisis asset levels,” yet sounded a note of caution.

“Though 2012 ended on a positive note for wealth management, with firms regaining speed in the form of net new money inflows, the U.S. wealth management industry is not out of the woods yet,” according to the report. “The first signs of better times are apparent in leading wealth management firms' recent quarterly results, but the industry still relies heavily on external factors, and regulatory change could still substantially alter the rules of the game.”

It will be some time before the “dust settles,” the report adds, around the makeup of the post-crisis wealth management industry and its future business model.

Source: Aite GroupAite went on to list the winner and losers in garnering assets in 2012. While the wirehouse channel still retained 37% of total industry assets, it represented a 0.7% decrease from the year before. Both fully disclosed and self-clearing retail brokerages followed, with 16% and 15% of industry assets respectively, representing a 0.3% and 0.2% decrease from 2011. Independent RIAs rang in with 13% of total industry assets, representing a 0.9% increase. Discount and online brokerage rounded out the list with 19% of industry assets and a 0.3% increase from 2011.  

In a related note, Cerulli found that boutiques firms “bring addressability to the RIA space.”

"Asset managers have been struggling for years with how to effectively address the RIA market, and boutique advisory firms allow them to target several practices simultaneously," Scott Smith, a director at Cerulli Associates, said in a statement. 

Smith added that the firm has seen a significant increase in the independent advisor market share from 29% in 2007 to more than 34% 2011.

As more advisors move toward independence, he argued, they become more challenging for managers to address; however, by targeting boutique advisory firms, asset managers are able to gain entry into and target this growing market segment. 

According to Cerulli, the defining features of a boutique are that the firm is of limited scale, focuses on "above average" advisors, and operates in an "advisor-centric" model, meaning that advisor-client relationships are central to the firm's value and revenues.   

The firm concluded that the sophistication of high-end independent wealth management practices and boutique providers could “rival anything offered by the legacy providers and that independent advisor market share will continue to increase over the next few years.”

---

Check out Are Financial Planners Failing to Set Themselves Apart? by Michael Kitces on ThinkAdvisor.

Reprints Discuss this story
This is where the comments go.