Independent Advisors Stare at an Uncertain Future, Experts Say

Fee-based registered financial advisors (RIA) and dually-registered advisors are rapidly pulling away from their commission-based independent representative peers with securities licenses, according to an industry consultant.

There are an estimated 100,000 independent reps and another 20,000 to 30,000 RIAs operating in the independent channel in the U.S. today.

“I would argue this industry is separating right now,” said Chip Roame, managing partner of Tiburon Advisors.

“I would say that the RIA portion of this business and the dually-registered portion of this business are booming, doing extraordinary well, assets are going up a lot,” he said.

Dually-registered financial advisors are authorized to operate as commission-based independent reps as well as fee-based RIAs.

But the traditional commission-based, broker-dealer business -- saddled with stagnant revenues and the shift in revenue models to favor more fee-based business -- isn’t doing well. It may even see negative growth in the future.

“You can do a trade for $5, you don’t have to pay $500,” said Michael Terrana, a Chicago-based financial advisor recruiter and industry consultant.

While advisors in the independent channel manage only about 60 percent of the assets managed by wirehouse advisors, the annual flows into the independent channel are higher than into wirehouses, Roame said.

RIAs to Grow in Assets, if Not Numbers

Independent reps, RIAs and dually-registered financial advisors are typically the front-line retail advisors consumers run into in the independent channel.

About $3.8 trillion in assets are managed by the independent channel.

Of that $3.8 trillion sum, independent reps manage $800 billion, dually registered financial advisors about $1 trillion and RIAs about $2 trillion.

By comparison, about $7 trillion worth of assets are controlled by the wirehouse channel.

About $160 billion flows into the independent channel annually, however, as approximately 500 to 600 brokers break away from the captive channel and head to the independent channel. Each broker team is bringing with it an average of $230 million, Roame said.

Assets flow into the independent channel from advisor teams and individual advisors leaving captive or employee ecosystems, usually from the big four of the wirehouse channel: Morgan Stanley, Merrill Lynch, Wells Fargo and UBS Wealth Management.

Advisors leave for independent broker-dealers or RIAs in search of more freedom and to serve their clients more effectively with a broader range of products.

If the RIA and dually-registered groups are slated to grow in terms of assets under management, they may not see commensurate growth in the number of RIA firms as companies consolidate and merge, Roame said.

The nation’s largest RIAs – Fisher Investments, Edelman Financial Services and United Capital Financial Advisors, for example – will grow but the 20,000 other RIA firms aren’t expected to grow at nearly the same pace, if at all, Roame said.

Inconsistent Measures Mar Counts

Measuring how many advisors operate in the independent channel is tricky and data among different lists and collection efforts are rarely consistent, Roame said.

Counting only front-line advisors who deal with a retail clientele, there are about 90,000 to 100,000 independent reps in addition to about 20,000 to 30,000 fee-based RIAs, Roame estimates.

But because those numbers overlap with about 20,000 who are dually-registered and often double-counted, there are 100,000 independent financial advisors in the U.S., he said.

Compiling an accurate tally of RIAs alone presents its own challenge as RIAs register as firms.

There are 21,488 fee-based financial advisors, of which 11,888 are registered with the Securities & Exchange Commission, and about 9,600 registered with state regulators. Among RIAs, the SEC-registered RIAs manage the lion’s share of assets.

Each RIA has an average of 1.7 partners, so estimating 36,000 men and women individually working as registered investment advisors would be a “relatively legitimate,” count, he said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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