2018 was a very mixed year for the wealth management industry. Client assets fell 2.1% overall to $23.7 trillion — the largest decline in over a decade — due to the drop in the stock market, but the drop-off was uneven and the number of advisors rose less than 1%, according to a new report from Aite Group.

Wirehouses were the biggest losers and clearing and custody (and the RIAs they serve) the biggest winners of the four market segments that Aite tracked, which also included self-clearing retail brokers like Raymond James and discount and online brokers.

Wirehouses lost 5.7% in assets and about 400 brokers. Self-clearing retail brokers lost 2.2% in assets but gained about 3,000 brokers, and discount and online brokers lost 0.9% in assets but gained 150 brokers. Clearing and custody firms gained 2% in assets, and the number of advisors they serve grew by a little more than 500.

By the end of the year, advisor headcount had reached the highest level in 10 years and the breakdown of advisors looked like this:

  • 205,202 served by clearing and custody firms, accounting for 60.6% of advisors
  • 63,834 at self-clearing retail brokerage firms (non-wirehouses), 18.9% of advisors
  • 54,030 at wirehouses, 16% of advisors
  • 15,450 at discount and online brokerages, 4.6% of advisors

Aite expects advisor growth will moderate over the next several years as “technology continues to scale an advisor’s ability to manage larger books,” but an increasing number of aging investors seeking financial advice could offset some of the slower growth.

Despite these changes that Aite catalogued through year-end 2018, wirehouses were still on top for market share but now share that summit with clearing and custody firms, each with a 30.3% market share and $7.2 trillion in assets. Discount and online brokerages had a 21.5% share and $5.1 trillion in assets, and self-clearing retail brokerages an 18% market share and $4.3 trillion in assets.

Greg O’Gara, a senior research analyst at Aite and co-author of the report, said the increase in clearing and custody assets and market share reflect a “validation of the RIA advisor model” and the growing number of breakaway wirehouse advisors who are joining RIA firms.

Aite projects that the market share of client assets will decline for wirehouses and self-clearing retail brokers, to 28.5% and 17.2% respectively, by 2022 but rise for RIA and other clients of clearing and custody firms, to 31.4%, and for discount online brokerages, to 22.9%.

Aite says these projected share increases will be driven by tech-savvy self-directed investors, fee transparency, price competition and the increasing availability of digital engagements via advisory platform technology and applications.

Aite expects fee-based revenues will continue to rise at the expense of commission-based revenue, due to a continued compression in commissions as “nearly all firms gravitate to a recurring fee model,” but could stall in more volatile markets. In that case, trading volume and commission revenue would likely increase, stabilizing the distribution of revenues.

The report concludes with these predictions:

  • Regulation Best Interest, though a priority of Securities and Exchange Commission Chairman Jay Clayton, will still be under review into 2020, maybe through the November election
  • Vendors will take a more dominant position in the advisor tech stack, fueled by custodians that continue to build API integration capabilities
  • Advisors’ conversations with clients will expand across market segments and include less frequently discussed topics such as the long-term cost of health care.
  • Digital engagement will continue to evolve with more flexibility on advisor platforms and increased use of artificial intelligence, which Aite refers to as “client intelligence through data” and “implementation of more sophisticated algorithms”
  • Greater efficiencies may be found through scalable cloud-based solutions.

— Check out United Capital Sale to Goldman Heralds Tougher Field for RIAs on ThinkAdvisor.