Products And Technology Targeting Independents

The growth in the number of independent advisors and the asset flows into the channel mean that independent advisors are “increasingly central” to product companies and technology vendors.

That’s the word from Chip Roame, managing director of Tiburon Strategic Advisors. Roame said that as a result of the growth in independent advisors, mutual fund complexes, insurance carriers and exchange-traded fund (ETF) companies will target this group more aggressively. This will come about as registered investment advisors (RIAs) capture a greater share of wealth from other distribution channels, he added.

Not only is that true of the product-development side of the industry, it is also true of the technology side.

“I think the same is true of technology companies and this is especially true in the RIA market where they have control of which technology they use,” Roame said in a late-January webinar with clients.

Wirehouses still dominate in terms of the total amount of assets under management with about $5.9 trillion under management.

By contrast fee-based financial advisors have an estimated $1.67 trillion in assets under administration, and independent broker/dealers have $2 trillion under management, according to Tiburon’s research.

On a per-advisor basis, however, the numbers paint a different story.

Wirehouses lead the financial advisor channel in average financial advisor assets under administration with about $124.7 million.

Fee-based financial advisors command, on average, $58.6 million in assets under management. Meanwhile, independent broker/dealers, on average, manage less — only $30.1 million in assets under management, according to Tiburon.

More money each year is flowing into the independent channel compared with the captive advisor channel, the data show. Product developers and technology vendors are aware of those assets streaming into the independent advisor market.

Market Flip-Flop

The market has flip-flopped compared with where it was 20 years, ago, Roame also said.

Years ago, captive distribution channels had access to leading-edge technology thanks to the deep pockets of their insurance carrier, wirehouse or broker/dealer sponsors.

The advisors who suffered were the advisors who struck out on their own and had to fend for themselves with cobbled-together technology.

But with the falling cost of computing and storage power, and distribution efficiencies afforded by the Internet, independent advisors are no longer at the mercy of second-rate technological infrastructures.

RIAs have “pure control of what technology they choose to use,” Roame said, compared with independent broker/dealers who don’t cede complete technological control to their reps.

Product companies and technology vendors, therefore, have focused more development to meet the needs of independent advisors, he added.

In a final, ironic marketplace about-face, even captive advisories will be using technology developed by outside vendors instead of relying on proprietary systems developed in-house by carriers.

“I think that's flip-flopped and I think you're going to see the captive advisory firms utilize third-party technology here soon,” Roame said. “So tech companies and the product companies are really focused on independent advisors today.”

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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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 cyril.tuohy@innfeedback.com.