We assume they mean pre-coronavirus crisis, but Cerulli Associates find that the advisor movement into the registered investment advisor (RIA) channel has buoyed overall channel growth.
“Broker-dealer (BD) advisors are seeking increased autonomy over how they run their practices and are motivated by the perceived economic advantages of the RIA model,” the research and consulting firm reports.
Specifically, Cerulli says that independent BDs who prefer the RIA model report higher payout (43%) and greater marketing flexibility (35%) as major factors in considering the RIA channel.
“The desire for independence is particularly pronounced among national and regional BDs, many of which may display a stronger entrepreneurial drive compared to their wirehouse peers,” according to Cerulli senior analyst Marina Shtyrkov. “Perhaps given the advisor-centric cultures at some of the largest national and regional BDs, these advisors feel more comfortable fully embracing independence.”
Within the RIA model, advisors use teaming as a strategy to achieve numerous benefits, including specialization, deeper internal intellectual capital, economies of scale, and a broader service set.
“All these outcomes enhance the client experience and allow RIAs to provide more holistic services,” the firm adds. “Currently, 62% of all RIAs operate in a team structure and the percentage jumps to 93% among firms with $500 million or more in assets under management.”
Broker-dealer concerns
Nonetheless, despite the benefits, IBD advisors’ concerns include assuming greater compliance responsibilities and increased liability when operating independently.
“Strategic partners can help advisors overcome those fears and explore their options by illustrating how they can help address specific concerns, especially if they can cite examples from their extensive experience navigating other advisors through those same issues,” according to Shtyrkov.
Advisors also fear that they will lose clients during the transition. However, Cerulli’s data shows that advisors who recently switched firms typically retain the majority of client assets after the move.
Overall, while advisor migration will slow in today’s particularly uncertain market, Cerulli expects continued strong growth in the RIA channel once the challenging conditions stabilize.
Breakaway advisors are drawn to the financial upside of independence, and potential breakaway advisors favor starting their own RIA over joining an existing firm, which speaks to the drivers of advisor movement to the independent space.
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.
