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Billion-Dollar RIAs Becoming ‘Formidable Competitors’ to BDs: Cerulli

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New research by Cerulli Associates shows that billion-dollar RIAs have steadily accumulated asset market share since 2012, reaching 60% at the end of last year, a total of $2.4 trillion. And BDs should beware, the researchers warned, because many breakaway brokers find RIAs a more attractive destination.

Today, 687 RIAs have amassed $1 billion in assets by bringing on board big teams from other channels and engaging in robust merger and acquisition activity.

Still, these big RIAs comprise only 3.8% of all retail-focused firms, according to Cerulli. A healthy majority of RIAs manages less than $100 million in assets, and these outperform their largest counterparts in growth benchmarking exercises.

“RIAs of all sizes are choosing to merge for a number of reasons: depth of specialization, succession and growth through economies of scale,” Cerulli research analyst Marina Shtyrkov said in a statement.

Cerulli’s research indicates that RIAs that have already amassed billions of dollars in assets are increasingly merging to expand their talent, strengthen their intellectual capital and create super-regional firms.

“Some of the largest RIAs resemble small broker-dealers in size, service and brand awareness among advisors,” Kenton Shirk, director of Cerulli’s intermediary practice, said in the statement.

“Their ability to lure breakaway advisors should be a concern for BDs. Half of breakaway advisors prefer to join an established independent practice. Billion-dollar RIAs are becoming formidable competitors for BDs.”

Cerulli’s data showed that 91% of independent broker-dealer advisors who preferred the RIA model considered greater compliance responsibilities a concern with regard to opening an RIA.

A quarter of IBDs with at least $500 million in assets under management seriously considered opening an independent RIA in the past 12 months. At the same time, only 35% of hybrid RIAs agreed or strongly agreed that they were looking to drop their BD affiliation.

In addition, 78% of RIAs in Cerulli’s research used models or custom portfolios developed by advisors, CIOs and/or analysts within the practice, and 53% used exchange-traded funds for both core and satellite holdings.

Fifty-seven percent of RIA firms managing $500 million or more in assets employed at least one research analyst or CIO. Ninety percent of research analysts and CIOs at RIA firms were responsible for asset manager due diligence and managing wholesaler relationships.

Cerulli also reported that 83% of national sales managers planned to increase distribution resources for RIAs in the next three years.

And more than 80% of wholesalers considered RIAs’ lack of receptivity to traditional wholesaling as a challenge, according to Cerulli.

— Check out Schwab Shows RIAs How to Stand Out on ThinkAdvisor.


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