RIA Industry Will Grow Faster Than the Market: Schwab Study

The largest custodian asked RIAs about 2020 and their predictions for the future of their industry.

(David Paul Morris/Bloomberg)

(David Paul Morris/Bloomberg)

The independent wealth management industry has grown steadily for a decade but financial advisors remain “bullish” about its expansion.

Nearly half of RIAs (47%) say the industry has not fully matured and that it will continue to grow at a higher rate than the market, according to the Schwab Advisor Services Independent Advisor Outlook Study. Only 33% said the same in August of 2020.

Forty-eight percent of RIAs said the industry will grow at a slow and steady rate. Just 4% said the industry has hit its peak growth and will now stabilize and remain flat (other than market-based fluctuations in assets) and 1% say the industry is on the decline.

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The Covid-19 pandemic accelerated the adoption of technology and business practices at RIAs, but advisors say other tailwinds are present. Investors are becoming more aware of independent RIAs, who are required to act as fiduciaries to clients, and 57% prefer it to other business models.

Improving technology and services for independent RIAs are also making it easier and more attractive for advisors to start or join independent firms, which 24% of RIAs said is driving the industry’s growth.

A growing number of affluent investors are also contributing to the RIA expansion, according to Schwab’s survey.

Advisors think innovation fueling the industry’s growth will come from many places. They cited an increasing number of technology companies as the most popular innovation driver. But they also said changing client demographics and needs, a need to streamline their business processes, were among sources of innovation.

The largest custodian surveyed almost 1,000 RIAs this April from Schwab Advisor Services and TD Ameritrade Institutional, the competing RIA custody business it acquired in 2019 and is in the process of integrating. The number of Covid-19 cases began an encouraging decline as millions were vaccinated, perhaps impacting advisors’ outlooks on the year.

The majority (62%) expect accelerating growth after a time of change in 2020 and 31% expect to keep growth as consistent as possible. Only 7% said they plan to rebuild after slowed progress last year.

The average RIA said their expected growth rate of new assets in 2021 was 18%. Organic growth (assets from new and existing clients) is expected to contribute 92% of new assets under management. Inorganic growth (assets from mergers and acquisitions, or new advisors joining a company) are expected to contribute a combined 8% of growth.

Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.

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