Number of RIAs Up 8% Annually Over 8 Years, Other Channels Decline

Cerulli report says breakaway brokers, lawyers and accountants fueled RIA growth in an otherwise 'shrinking industry'

“RIAs are the sole growth story in a shrinking industry” of advisors, said Bing Waldert, a Cerulli Associates director commenting on the findings in its Cerulli Edge-U.S. Asset Management Edition report released today. Specifically, the report says the number of advisors in the RIA channel grew at an annualized rate of 8% over the years 2004-2012, while other advisor industry channels declined by 1.2% to 2.5%.

During those years, says Cerulli, wirehouses lost 2.5% of their brokers, independent BDs and insurance BDs lost 1.4%, bank BDs lost 1.9% and regionals lost 1.2%, which was also the overall decline among all advisor channels (Cerulli uses data from Bank Insurance Market Research Group, Investment News, Meridian IQ and itself for the advisor numbers).  

Cerulli says the RIA channel “has begun the transition from a coalition of small businesses to one that is populated by multiadvisor firms, similar to other traditional distribution channels." It also notes that many of the largest independent broker-dealers have launched their own RIA custody businesses (the report mentions that LPL specifically was “the first IBD to react to the growth of the dually registered model,” though both Raymond James and Commonwealth have also launched custody divisions). The leaders of those firms have admitted in separate interviews that those custody channels are as much a retention tool as they are a recruiting tool. 

In a statement accompanying the release, Waldert said that breakaway brokers have been an “important driver” of RIA growth, but also cited “nontraditional competitors, such as law and accounting firms” who have been entering the RIA space. The breakaway brokers, the report found, swelling the ranks of RIAs came not only from employee BDs like the wirehouses, but also from independent BD advisors. Waldert concluded that "the unique challenges of business ownership are no longer an obstacle for a breakaway advisor.” 

The Cerulli findings confirm what most in the industry expect to be the case, and which other data support. As of October, for example, FINRA said it oversaw 4,195 firms, 162,808 branch offices and 634,955 registered reps. As of October 2008, there were 4,895 firms, 171,659 branch offices and 664,975 reps. 

In October, the Investment Adviser Association and National Regulatory Services released a report that listed the total number of SEC-registered RIA firms to be 10,533 as of April, “despite the fact that 2,000 federally registered advisors completed their switch to state registration” under the Dodd-Frank Act. The number of SEC RIA firms in the 13th annual IAA-NRS “Evolution/Revolution” report was bolstered by 1,500 “private fund advisors” who registered with the SEC. 

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