By Cyril Tuohy
Although still expected to remain dominant, the largest financial advisor firms will continuing losing out in the wealth management segment to independent and boutique registered investment advisor (RIA) firms, according to new research from Cerulli Associates.
Independent advisor market share has grown from 29 percent in 2007 to more than 34 percent in 2011, Cerulli found, as individual advisors or groups of advisors have left broker-dealers to strike out on their own.
Scott Smith, director at Cerulli Associates and author of the report, “Boutique Advisory Firms and RIAs: Balancing Scale and Independence for Top-Tier Advisors,” said that boutique advisors are capable of rivaling “anything offered by the legacy providers,” even if they don’t have the scale of a legacy wirehouse such as Morgan Stanley or Merrill Lynch.
The defining features of a boutique firm, which holds sacred the advisor-client relationship, are that the advisory firm is of limited scale and that it focuses on attracting above-average advisors. The “advisor-centric” model remains the bedrock of the relationship.
The report specifically names firms like Chicago-based HighTower Advisors, Dynasty Financial Partners in New York and Purchase, N.Y.-based SeaCrest Wealth Management as examples of the boutique advisory firms.
Big broker-dealers with thousands of advisors often have their own in-house advisor teams that serve specific clients. But the broker-dealer has to prioritize support for their advisor base and “may not address the unique needs of some practices,” the report said.
As a result, individual advisors or larger teams of advisors leave a broker-dealer for another firm or to set up an RIA from scratch.
“Cerulli believes that high-production teams will increasingly seek out firms that focus on their specific needs rather than affiliate with providers that seek to serve a wide range of advisors across multiple segments,” the report said.
Separately, an annual government filing by LPL Financial Holdings, which provides technology and business services to advisors, also noted the trend among advisors migrating toward independence.
Even as advisors remain interested in retaining assets in brokerage accounts, many are heeding the call of independence by forming RIAs and registering the RIA directly with the Securities and Exchange Commission. This is leading to “significant growth” in independent RIAs, according to the LPL filings.
Jumping ship, however, isn’t for everyone. Cerulli said that advisors interested in joining the independent RIA channel are “nearly equally divided” between advisors who prefer establishing their own firm and those who prefer to join another practice.
Breaking away isn’t viable over the long run for RIAs with less than $100 million in assets under management, Cerulli also said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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