Wirehouse Assets Sliding To Burgeoning RIAs

As advisors and assets continue to shift away from wirehouses and toward RIAs, the RIA channel itself is becoming more concentrated, according to a new report.

The concentration of big RIAs is significant because it means that RIAs will be able to develop more advanced approaches to building portfolios and products designed to fit managed accounts.

Of the $4 trillion in assets under management by RIAs in 2016, about 60 percent or $2.4 trillion was controlled by large billion-dollar RIAs, according to Cerulli Associates.

Nearly three-quarters of RIAs manage $100 million or less in assets.

RIAs of all sizes have grown as they’ve taken market share from wirehouses, but for the first time the market share for managed accounts held by wirehouses dropped below 50 percent last year, from a peak of 71 percent in 2001, Cerulli said.

RIAs have benefited from:

• A fiduciary approach that has pushed advisors to spend more time planning and less time selling to their clients.
• Consolidators like Focus Financial Partners and HighTower Advisors have allowed for the aggregation of individual RIAs into larger groups to benefit from economies of scale.

A Maturing Channel

Not only is the RIA channel bifurcating into an elite group of mega advisors with discretion over client accounts and the mass of smaller advisors that outsource portfolio management, RIAs are growing faster than the wirehouse channel.

In the five-year period ending in 2016, advisor headcount at wirehouses dropped 1.5 percent to 47,000, Cerulli estimates.

Advisor-managed assets grew 5.4 percent annually to $6.4 trillion over the period.

By contrast, advisor headcount at RIAs has grown and assets have grown even faster.

• Dually-registered RIAs saw headcount rise 8 percent to 27,000, and advisor headcount at independent RIAs rose 5 percent to 37,000.
• Advisor-managed assets among dually-registered RIAs rose 11 percent to $1.5 trillion while assets managed by independent RIAs rose 12 percent to $2.4 trillion.

Hundreds of teams leave wirehouses every year, but analysts say it’s the size of the assets these top teams take with them that are most noteworthy.

Two recently departed advisor teams from Merrill Lynch took with them $8.6 billion in assets, according to news reports.

Wirehouses Paring Back

As wirehouses trim shelf space to focus on due diligence efforts to conform to a fiduciary era, they no longer serve as the “go-to” distribution outlet for asset managers, O’Shea said.

In reviewing product inventories and utilization, many broker-dealers found some products were selling in annual volumes of $100 million or less.

While those products satisfied only a handful of advisors, they were only marginally profitable for the broker-dealer.

“Many people were saying we don’t need all those products,” he said. “Broker-dealers looked at their shelves and said we have more products than we need.”

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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