New research from Cerulli Associates finds that the total market for registered investment advisor (RIA) acquisitions over the next five to 10 years could be as high as $2.4 trillion in assets under management.
The figure—comprised of impending advisor retirements ($1.6 trillion), breakaway advisors ($469 billion), and growth-challenged RIAs ($348 billion)—paints a picture of a vastly different playing field for RIAs.
Given that the major RIA consolidators currently manage a total of $308 billion today, $2.4 trillion represents “a massive growth opportunity.”
One of the primary drivers of RIA consolidation is an impending succession crisis among advisors. According to Cerulli’s projections, slightly more than 32% of advisors in the RIA channels plan to retire in the next 10 years, many of whom lack a succession plan.
“Succession planning resources are decentralized in the independent channel, meaning the largest, well-capitalized RIAs are best positioned to match advisors to a like-minded successor, help navigate the process, and provide capital to fund the transition,” Marina Shtyrkov, research analyst at Cerulli, said in a statement. More than 80% of advisors who are currently affiliated with an RIA consolidator see it as a succession exit strategy.
As the RIA channel continues to steal market share away from wirehouses, attracting advisors with the financial value and an enduring legacy, it presents another growth opportunity.
“Consolidators provide the safety net of operational support, strategic guidance, and economies of scale, while also allowing advisors to retain flexibility and gain more control over their practice than they have in the BD channels,” Shtyrkov added.
Top concerns
Aside from losing clients during a transition to independence, breakaway advisors’ top concerns focus on the cost and additional responsibilities of operating an RIA. As a result, roughly half would prefer to join an existing independent firm instead of starting their own.
Persistent growth challenges facing existing RIAs will also create continued acquisition opportunities. RIAs of all sizes face myriad growth-related challenges, including time constraints, increasing costs, technology integration, compliance hurdles, accommodations for increased staff headcount, and reallocations of management responsibilities.
“By delivering turnkey resources, strategic guidance, and expertise, consolidators allow advisors to focus on what they really care about, such as growth and working with clients,” Shtyrkov said.
A large part of the RIA market is available to consolidate, presenting a positive outlook for the future state of consolidation and consolidator firms are best positioned to capitalize on this opportunity.
Cerulli places these consolidators into three categories: RIA-branded platforms, financial acquirers, and strategic acquirers.
Each of these business models faces unique opportunities and risks, contending with new challenges as they grow. Overall, as a fast-growing segment seeking to aggregate an otherwise highly fragmented market, RIA consolidators are an attractive opportunity for private equity investors and asset managers.
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.
