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The registered investment advisor channel is seeing growth thanks in part to the movement of advisors from the broker-dealer channel, who are looking for more autonomy as well as what they see as economic advantages in the RIA model.
According to the latest edition of The Cerulli Edge—U.S. Asset and Wealth Management Edition, Cerulli says that 43 percent of those IDBs who prefer the RIA model say that payout is higher, while 35 percent cite greater flexibility in marketing as their reason to consider moving to the RIA channel.
Senior analyst Marina Shtyrkov is quoted in the report saying, "The desire for independence is particularly pronounced among national and regional B/Ds, many of which may display a stronger entrepreneurial drive compared to their wirehouse peers. Perhaps given the advisor-centric cultures at some of the largest national and regional B/Ds, these advisors feel more comfortable fully embracing independence."
Teaming strategy is used in the RIA model, giving advisors the chance for greater specialization. In addition, the strategy provides deeper internal intellectual capital, economies of scale and a broader service set—all of which enhance the client experience, says the report, while allowing RIAs to provide more holistic services
At present, 62 percent of all RIAs are working within a team structure—but among firms with $500 million or more in assets under management, that figure soars to 93 percent.
There is a but, though, with IBD advisors being concerned about assuming greater compliance responsibilities and increased liability when operating independently. They're also worried about the potential to lose clients while transitioning from one model to the other—although Cerulli data finds that advisors who recently switched firms typically retain the majority of client assets after the move.
And about their compliance and liability concerns, Shtyrkov comments, "Strategic partners can help advisors overcome those fears and explore their options by illustrating how they can help address specific concerns, especially if they can cite examples from their extensive experience navigating other advisors through those same issues."
Advisors also fear that they will lose clients during the transition. Despite today's market uncertainty, Cerulli expects that although it has slowed at present, growth in the RIA channel will rev up again once things have stabilized. The report says, "Breakaway advisors are drawn to the financial upside of independence, and potential breakaway advisors favor starting their own RIA over joining an existing firm, which speaks to the drivers of advisor movement to the independent space."
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
