All or nothing; can’t be half-pregnant—the clichés don’t appear to hold for the RIA space, and the hybrid model is becoming more of a permanent fixture, rather than a temporary stopover on the road to advisor independence.
Specifically, new data from global research and consulting firm Cerulli Associates finds the hybrid-RIA channel has claimed its place as the real deal for many advisors.
“The hybrid model is garnering staying power,” Marina Shtyrkov, research analyst at the Boston-based firm, said in a statement. “Among advisors who switched to the hybrid model in the past one to five years, only 23 percent would choose to drop their broker-dealer affiliation and move fully to the independent RIA channel if they were to switch firms.”
Given recent ruminations over the fiduciary rule and fee compression, the findings are surprising.
“There is a growing segment of advisors who will remain committed to the hybrid RIA model instead of using it as a stepping stone to the independent RIA channel, Shtyrkov added. “The difference between being a hybrid RIA—with the infrastructure and product support of a BD affiliation—and an independent RIA is greater than it may initially seem. In addition, the appeal of commissionable product access can’t be underestimated, even in a fee-based environment.”
Over the past decade, the hybrid-RIA channel more than doubled its control of advisor headcount market share, from 4.1 percent to 8.8 percent, and this advisor migration is primarily from wirehouses and independent broker-dealers (IBDs). Close to one-quarter of advisors who switched to the hybrid-RIA channel one to five years ago are either wirehouse or independent B/D advisors, she explained.
The hybrid-RIA channel is appealing to advisors who see the infrastructure of the model as a gateway to growth, Cerulli explained, but it is also well positioned to absorb advisors who are either unprepared or unwilling to assume the responsibilities of managing a business in addition to working with clients.
Advisors seriously evaluating the hybrid RIA model are primarily searching for autonomy with partial infrastructure, product access (commissionable and fee-based products), and growth support.
In addition, Cerulli’s latest report found that hybrid RIAs outperform their independent RIA peers in growth rate benchmarks.
Across every assets-under-management segment, hybrid RIAs grew by a stronger five-year compound annual growth rate (CAGR) than their independent RIA counterparts from 2012 to 2017.
Hybrid RIAs’ BD affiliations afford them an advantage over peers in the independent RIA channel that lack the same support, the research concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
