RIAs Getting Bigger Slice Of $7 Trillion Pie

Assets under management are growing at twice the rate for registered investment advisors than independent broker-dealers, according to a leading analyst.

That is one trend line not likely to change anytime soon, said Chip Roame, managing partner of Tiburon Strategic Advisors.

Roame hosted a Thursday conference call that AUM held by RIAs grew 11.3% annually over the past 10 years, Roame said, and 10.4% in the dually registered world. Independent broker-dealers, meanwhile, grew at 5.9% annually. Good, but not great, Roame said.

"I think it's important to understand that the independent rep segment has not been growing at the same pace that the RIA or fee-based financial advisor segment has been growing," he said. "And the dually registered guy, because he's also at least partly an RIA, has been going along with the faster growth but the independent rep space, much slower growth."

Independent Rep Forecast

But Tiburon CEO Summit attendees generally agree that the RIA world is hot and will remain so, he added, while the BD space is expected to continue to see "moderate growth." That is the first Tiburon prediction for the future of independent reps.

Here are the others:

• Continued to shift to managed accounts.
• The dually registered advisor will become the most important portion of this market.
• Independent broker dealers will continue to have profitability pressures.
• Independent broker dealers will look more and more like custodians every day.
• Continued independent broker dealer consolidation.

Just five years ago, a majority of CEOs surveyed predicted "huge growth" among independent broker-dealers. In the latest survey, that number dropped to 5%, with 52% predicting moderate growth and 43% saying the IBD market will "stagnate."

Overall, Tiburon counts nearly 150,000 independent financial advisors in 2018 data, up a whopping 15% from 2017. While a difficult number to count, Roame said it is as accurate as can be.

"We think there's 150,000 advisors, men and women who have a book of business out there," he said. "And we think they have just under $7 trillion of assets."

That $7 trillion number has steadily grown 4-5% annually.

"That's the size of the market," Roame said. "If you're a fund company or an annuity company or a turnkey asset management program or an SMA (separately managed accounts) provider, that's $7 trillion of assets you can try and go get."

The assets are not held equally among independent reps and RIAs, however, Roame noted. While about 80% of the 150,000 advisors are counted as independent reps, they control just $2.6 trillion. The 30,000 RIAs control $4.3 trillion in assets.

The top companies are CapTrust Financial Advisors with $362 billion and Edelman Financial Engines with $220 billion.

RIA Predictions

So it's no surprise that future prospects are stronger on the RIA side. Tiburon expects moderate growth in the number of advisors, but "rapid growth" in their assets under management, Roame said. Additional predictions:

• Continued dominant role of custodians
• Growing use of exchange-traded funds, alternative investments and wealth management products
• Continued search for technology and opportunities in outsourcing
• Consolidation of fee-based advisors
• Rapid growth in private equity investments

Among Tiburon CEO Summit attendees, 60% of them say moderate growth in the RIA sector. The other 36% say "huge growth."

Roame noted the recent Charles Schwab-TD Ameritrade marriage, one that brought together the top two financial advisor custodians in terms of number of fee-based financial advisor clients with 7,500 and 6,100, respectively. Trailing in a distant third now is SEI Investments with 5,250 fee-based financial advisor clients.

But despite the rush to scale, small advisors "will continue to survive," Roame predicted.

"I think you're going to see consolidation at the top," he said. "And you're just going to continue to see lots of small providers out there as well. Both ends of the bar will continue to exist."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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