RIAs are outpacing all other channels in headcount and assets under management, according to a new report by Cerulli Associates, a wealth and asset management research consulting firm.
Over the last decade, the number of independent RIA firms has grown at a compound annual growth rate (CAGR) of 2.4 percent and the number of advisors at independent RIAs, grew at a CAGR of 5.2 percent over the same period. Conversely, growth across all other channels remained relatively flat or even declined, according to the report.
Cerulli projects that by 2027, independent and hybrid RIAs will control about one-third of the intermediary market, up from the 26.7 percent they currently control. The wirehouse channel is projected to lose the largest market share over the same period.
Assets managed by independent and hybrid RIAs have grown at the highest five- and 10-year growth rates of all channels, according to the report.
Advisors have exited the independent broker-dealer channel at a faster rate than any other. Despite that, independent broker-dealer firms currently have a 17.3 percent share of the market, but only manage 12.3 percent of the assets across channels. Wirehouses account for 15.1 percent of advisors but manage 34 percent of total assets.
That is set to change.
The allure of independence is a big draw to advisors in other channels, said Cerulli.
“Although the wirehouse channel dominates industry assets and average advisor productivity, the flexibility and higher payout percentages of independence is appealing to many advisors,” Andrew Blake, associate director at Cerulli, said in a statement.
Investors are also increasingly turning to advisors.
A recent report by Cerulli found that affluent investors are more reliant on advisors than ever before. In the last year, advisor-reliant investors—investors who see value in formal financial planning and prefer to have a human advisor— grew from 36 percent last year to 44 percent. Many of these affluent investors are younger and digitally savvy, with previously limited interactions with advisors.
This growing trend of affluent, advisor-reliant investors has created a “significant opportunity” for advisors to grow their books with a group of previously ignored, wealthy, advisor-friendly investors.
Many of these assets may make their way into the RIA channel. Among Millennials, quality of service was a top reason for establishing a financial provider relationship, according to the report.
“While the BD/wirehouse model is great place to get your start and receive essential training, the end game is RIA,” Trey Prescott, director of business development with Advisory Services Network, an RIA with $6.6 billion in assets, said in an email. “The RIA model isn’t only entrepreneurial; it’s generational. Advisors are now finding that their expertise and service to the right families can be a generational venture for them and their family moving forward.”