New research by Cerulli Associates says that the fastest growing advisor channels are the ones with the most independence, registered investment advisors (RIAs). The biggest growth, the study says, has been among dually registered advisors–those with a broker/dealer affiliation and their own RIA for providing fee-based advice.

The new research, Intermediary Markets 2007, says the independent advisory channel has grown from approximately $950 billion in 2005 to more than $4 trillion at the end of 2006. The biggest growth, the study reveals, has been among dually registered advisors, those with a broker/dealer affiliation and their own RIA for providing fee-based advice. “The growth of the dually registered advisor is due to advisors starting their own advisory firms while maintaining a broker/dealer affiliation,” the research says. “However, they are retaining their broker/dealer affiliation as an intermediate step if they still have 12b-1 income or commission-oriented products on their book.”

The study goes on to say that “after growing comfortable with the independent advisory model and frustration with multiple levels of regulation, this is usually followed by an ultimate shift to pure independence.”

Many of the traditionally proprietary distribution arms are moving toward independence as well, the study notes, with wirehouse firms like Smith Barney and Legg Mason already separating their distribution and manufacturing businesses.

The research, which also examines retail distributed financial products, found that with an ever-widening menu of product choices and the dominance of a few mutual fund companies, it is becoming more difficult for product manufacturers to differentiate themselves. Long-term mutual funds remain the product of choice for most advisors, the study says, but ETFs are being used more and more by advisors as they “seek ways to build better portfolios.”

The trend toward independent advice has also led to the “explosion of managed accounts,” the research says. Because the most successful advisors are those running fee-based practices, product providers who wish to cater to these advisors, and their wealthy clients, “must understand how to work within the constructs” of managed accounts programs.