Robust Growth Predicted In The RIA Channel

By Cyril Tuohy

Yes, many financial advisors are retiring and it’s not clear whether they can be replaced in big enough numbers to sustain the industry over the long term.

Yes, the regulatory burdens on advisors are greater than they ever have been before and appear likely to thicken.

Yes, registered investment advisors (RIAs) are bound to face some competition from Internet-only or “roboadvisors,” and the point-and-click model.

No, Hank N. Mulvihill, head of a Richardson, Texas-based RIA that bears his name, isn’t the least bit worried about his future.

“RIA growth will almost certainly continue to be robust,” Mulvihill, founder of Mulvihill Asset Management, said in an interview with InsuranceNewsNet. “The regulatory climate is changing in favor of fiduciary advisors.”

Mulvihill, a certified financial planner (CFP), said the evolving business model of RIA licensing for advisors, combined with life, health, disability and long-term care licenses, “may well become the platinum standard for wealth management.”

He’s not alone in spreading the optimism surrounding future growth of RIAs.

More than 90 percent of RIAs believe the industry will continue to grow, according to a survey of RIAs conducted by Charles Schwab & Co. In addition, more than half — 53 percent — said the industry hasn’t peaked and will continue to grow faster than the rest of the market.

The Independent Advisor Outlook Survey (IAOS) revealed that the independent RIA model is resonating with advisors as well as with investors, according to Bernie Clark, executive vice president and head of Schwab Advisor Services, one of the largest RIAs in the country.

“From emerging clients and the next generation of advisors, to new technologies that change the way firms work, RIAs have the opportunity to capture an increased share of the affluent market and to take decisive actions now to lay the groundwork for their firm well into the future,” he said.

A six-year bull run has helped fuel the growth of RIAs. It’s no secret that tens of millions of retiring baby boomers need all the advice they can get to make their retirement funds last for 20 or 30 years.

Schwab’s IAOS found that 23 percent of respondents said the strong market has contributed to their firm’s growth, 16 percent said the roaring market provided higher advisor compensation, 13 percent said it created more capital to invest in growth and operations, and 13 percent said the market helped consolidate client assets.

Advisors find the independent model attractive because they see it as a way to best serve their clients, which is why advisors entered the business in the first place.

Not only do independent advisory models unshackle the advisor from selling proprietary products, many RIAs are fee-based, rather than commission-based. Many argue that receiving commissions while dispensing advice is not an objective approach to investment planning.

“I can’t imagine that any thoughtful advisor wants to be trapped into selling proprietary products,” Lenard S. Cohen, a certified financial planner and investment advisor representative (IAR) with CF Services Group in Gaithersburg, Md., wrote in an email.

Cohen said RIAs will grow because of the clear fiduciary standards under which they must operate — standards that are the focus of heated debate between the financial and insurance advisory industry and the U.S. Department of Labor.

Advisors also like the independence to choose one mutual fund money manager over another. Meanwhile, the transparent, fair and adequate compensation structures appeal to clients who are acutely aware of the conflicts of interest faced by intermediaries.

The more freedom advisors have, the more effectively they can serve clients. “There will always be a place for the advisor who wants to sit in front of a client and who looks out for the client’s best interest,” Mulvihill said.

The number of advisors practicing in the registered investment advisor model grew at an annualized rate of 8 percent between 2004 and 2012, according to a Cerulli Associates report.

Every other channel from regional broker/dealers to independent broker/dealers to bank broker/dealers to insurance brokers/dealers and wirehouses declined over the time period, according to the Cerulli report.

“RIAs are the sole growth story in a shrinking industry,” Bing Waldert, a director with Cerulli, said in a news release issued with the December report.

As of May 2014, there were 31,739 RIA firms registered, an increase of 2.4 percent or 744 firms from the previous year, according to data from the advisory research company Meridian-IQ.

“The RIA business model is a better model for both clients and advisors,” Robert Wesley Shannon, a certified financial planner and founder of SJK Financial Planning in Hurst, Texas, said in an email. Advisors are in a position to act in the best interest of clients, and advisors are also in a position to make more money from the services they provide.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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].