Independent registered investment advisors (RIAs) represent the fastest-growing distribution channel in the asset management industry, according to a new report.
The number of advisors practicing in the RIA model growing by 7.9 percent in 2014 over the previous year, according to a survey from Boston-based Cerulli Associates.
It is what Cerulli calls “the sole growth story in a shrinking industry,” which makes it worth asking: What does the profile of an RIA look like these days, and what behavioral patterns do the data reveal about RIAs?
RIAs, it turns out, spend 52 percent of their time on client-facing activities and nearly 20 percent of their time on investment management duties, Cerulli researchers found in their latest analysis issued earlier this month.
An estimated 36 percent of RIAs operate as solo practitioners while 64 percent operate either as partnerships or within “multi-advisor structures,” the researchers said.
The findings are compiled in a note to clients titled “RIA Marketplace 2015: Positioning to Win a Growing Advisor Segment.” The report coincides with the annual Schwab Advisor Services survey of RIAs, which revealed strong optimism for firm growth in 2016.
In addition, 31 percent of RIAs have at least one financial planning specialist, paraplanner, chief investment officer (CIO) or research analyst on staff and 24 percent have at least one CIO or research analyst, Cerulli found.
By 2018, 43.8 percent of clients at RIA firms will be receiving comprehensive financial planning and 46 percent of RIA clients say their goals is to achieve an comfortable standards of living in retirement, the research found.
Another recent Cerulli survey revealed the extent to which RIAs are dominating the retirement plan space.
Cerulli researchers said that 86 percent of RIAs do not rely on third-party models to build investment portfolios and instead, rely on in-house models.
More than half — 59 percent — of RIAs say the reason they changed custodians was because of poor client services. Fifty-four percent said they changed due to unsatisfactory technology infrastructures and 53 percent said they changed because custodians charged too much.
Not surprisingly, the larger the RIA, the greater their control of asset market share. RIAs with $500 million or more in assets control 69.2 percent of the RIA channel’s market share, the researchers found.
Nearly two-thirds — 65 percent — of dually registered advisors plan to continue serving clients on a fee and commission basis, the report said. Dually-registered RIAs firms are registered as an advisor and as a broker-dealer.
Registering as an investment advisor entails meeting a fiduciary standard of care toward clients whereas a registering as a broker-dealer entails meeting a suitability standard.
And last but not least, why are advisors leaving broker-dealers and wirehouses for the RIA channel in the first place?
Fifty-five percent of advisors who switched to the RIA channel said they were driven to do so out of independence and because they were dissatisfied with the culture at broker-dealers, the report said.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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