Registered investment advisor and dually registered advisor assets are expected to reach 28% market share by year-end 2018, according to the latest report byCerulli Associates, “RIA Marketplace 2014: Growth Drivers in an Accelerating Industry Segment.”
The RIA and dually registered segments account for 19.8% of overall intermediated retail investor assets and 18.6% of advisor headcount as of year-end 2013, according to Cerulli’s research. Based on this, Cerulli projects that the channel will grow to 27.9% of assets and 24.6% of advisor headcount by 2018.
“The asset market share of the RIA channel exceeds headcount market share, reinforcing the fact that RIA advisors manage more assets than advisors outside of the channel, on average,” stated Kenton Shirk, associate director at Cerulli, in a statement. “When you combine this data with our projected growth of the channel, it would seem that the RIA channel would be a high priority for asset managers.”
In comparison to other retail advice channels, RIAs experienced the strongest growth among the independent channels in 2013. According to Cerulli, the channel increased 17.1% in 2013 to $1.67 trillion in total assets and expanded its asset marketshare from 9.2% in 2007 to 11.9% in 2013, which equates to a compound annual growth rate of 8.3% and a $600 billion boost in assets on a base of $1 trillion.
The dually registered segment, where practices affiliate with an independent broker-dealer for brokerage platform access as well as maintain their own RIA registration, also experienced strong growth over the past several years, according to Cerulli.
The channel’s asset market share went from 6.8% in 2007 to 7.9% in 2013 – or a 6.3% compound annual growth rate for that six-year period. Cerulli said the channel eclipsed $1 trillion in 2012 and grew assets an additional 11.1% to $1.1 trillion.
As of year-end 2013, Cerulli stated that Schwab became the first custodian to amass more than $1 trillion in RIA assets, and, according to Cerulli, Schwab and Fidelity combined account for more than $809 billion in RIA mutual fund assets, which exceed the fund assets of any advised distribution channel except the wirehouses.
“Ongoing growth of RIA practices with more than $1 billion in assets has occurred, and while these practices are certainly attractive on a stand-alone basis, they become less so when compared to wirehouse branch offices, which represent equal or larger opportunities,” Shirk continued. “The reality is that strategic partnerships with large broker-dealers ensure branch office access and consideration for inclusion in the portfolios recommended by home-office teams, which can result in millions of dollars of flows based on a single decision.”
Cerulli equates the growth within the RIA and Dually Registered advisor segment to the obvious explanation, increased headcount, but also the not-so-obvious asset consolidation.
Regarding the RIA channel, the report states, “though the growth of the registered investment advisor (RIA) channel is largely thought to be a result of advisors’ flight to independence, the reality is that asset consolidation is a major theme within the segment.”
According to Cerulli, market appreciation has helped increase the number of firms with more than $1 billion in client assets.
“However, the expansion of asset market share among these firms has outstripped the growth of the firm marketshare, indicating that the largest RIAs are growing faster than the channel, or equity market, overall,” stated the report.
Meanwhile, within dually registered firm, the increase of advisor headcount is a key factor in this growth.
The leaders of dually registered firms have recognized how hard the transition to independence is for advisors, and thus, the report states, “have created landing opportunities for advisors.”
For those advisors “who wish to join the ranks of the independent without having to concern themselves with the minutia of running a practice from an operational perspective,” dually registered practice owners have paved the way for them.
For these dually registered practice owners, they are able to increase their firms’ revenues, as well as their prospective advisors. And these advisors are able to make efficient transitions into already-established practices “while still leaving themselves the option to establish their own stand-alone firms later if they so choose.”
According to Cerulli, “the dually registered model was historically considered a short-term stopover for advisors transitioning between the IBD and pure RIA models, but evidence suggests that it may be a more permanent landing pad.”
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