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Bucking the trend, RIA channel enjoys strong growth

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As a group, registered investment advisors (RIA) stood apart from five other advisor distribution channels in experiencing growth between 2004 and 2012, according to a new report.

Cerulli Associates discloses this finding in the December 2013 edition of “The Cerulli Edge: U.S. Asset Management Edition.” The report examines the RIA channel’s evolution, how third-party vendor platforms reach advisors who value flexibility and emerging strategies respecting exchange-traded funds.

The RIA channel grew at an annualized 8 percent rate between 2004 and 2012. In contrast, regional broker-dealers, insurance broker-dealers and independent broker-dealers saw their numbers contract by 1.2 percent, 1.4 percent and 1.4 percent, respectively.

Also suffering declines during the eight-year period were bank broker-dealers (down 1.9 percent) and wirehouses (off 2.5 percent). In the aggregate, the report observes, all advisor channels contracted 1.2 percent between 2004 and 2012.

The report attributes the RIA channel’s expansion to several factors, chief among them an increase in the number of so-called “break-away brokers” — an advisor or team of advisors who leave an employee broker-dealer to establish an independent practice. Also contributing to the RIA channel’s growth, Cerulli states, were increases in the number of non-traditional competitors, including law and accounting firms; and of independent broker-dealers transitioning to the RIA space.

“Owing to these multiple sources of growth, the RIA channel expanded from a cottage industry to an essential element within the financial advisory and asset management space,” the report states. “As part of this maturation, the independent 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.

“Likewise, many of the largest IBDs are either rolling out options for advisors to affiliate as independent RIAs or modifying their pricing to match that of custodians,” the report adds. “The latter option presents opportunities to retain their own advisors and to compete for breakaways.”

Cerulli notes also a rise in the average number of advisors per dually registered firm (i.e., advisors registered with both a broker-dealer and RIA firm). In 2012, the average number was 5.4, as compared to 3.9 in 2011, 4.1 in 2010 and 3.3 in 2009.