Registered Investment Advisors Continue Their Rapid Growth: What This Means to You

Tenured Advisers Moving from B/D Is One Factor Driving Growth of RIA Channel  

RIAs have been on a growth curve for a long time. “RIA firms represent the fastest-growing category in the U.S. wealth management market since 2016.” [1] 

Investment Adviser reports, “the industry grew by 16.7%, with close to 15,000 Securities and Exchange Commission (SEC)-registered investment advisers managing $128.4 trillion in assets for 64.7 million clients.” [2]

One of the key drivers of the growth of RIAs is the desire of senior advisers working for broker-dealers large and small is to monetize their books. So, F.A.s look for the highest bidder.

RIAs Offering Better Prices for F.A.s Book Than Retention Payments by B/Ds

According to the McKinsey report, RIAs often pay more for an F.A.s book than another broker/dealer, as well as exceeding the “stay in place” payments F.A.s could be receiving from their present firms. “Advisors may receive 2x–3.5x of trailing 12-month production. That would tempt many. F.A.s surveyed who had made the jump said one of the reasons they did it was they felt they could grow their business faster at an RIA than if they stayed at a large B/D.

Broker/Dealers Losing Market Share and Highly Experienced FAs

McKinsey reports F.A.s 55 years and older handle 50% of client assets managed by RIAs. [3] Given the total amount of assets managed by RIAs, that would be 65 trillion in AUM. These are precisely the F.A.s broker/dealers want to keep, but they are losing the battle so far. If you have loyal clients, flipping might be the best way to monetize your book at its highest value. But there are no guarantees, especially in our industry. Nonetheless, the RIA channel continues to grow. Says the well-known research firm Cerulli, “by 2025, the RIA channels will make up more than a quarter of advisor market share.”

Senior F.A.s/Investment Advisers Retiring Creates Major Opportunity

According to the Bureau of Labor Statistics, U.S. Dept of Labor, “employment of personal financial advisors is projected to grow 15 percent from 2021 to 2031, much faster than the average for all occupations.” Because of the aging population and increasing retirement of the current aging F.A. force, the BLS predicts 30,500 personal financial advisers will need to be hired every year of the next decade. That’s a lot of vacancies and provides a great opportunity for younger people or mid to late career changers. [4] According to research firm Cerulli, over the next eight years, 1/3 of advisers are expected to retire, leading to the transition of more than 40% of industry assets. [5]

How Many Registered Investment Firms Are in Business

As of 2021, there are 15,000 Registered Investment Advisors with the SEC. [2]

(A note on the nomenclature: a Registered Investment Advisor is a firm, not a person. You are an IAR or Investment Advisory Representative.)

But this isn’t the total number. You don’t have to register with the SEC until your AUM exceeds 110MM. If your firm is smaller, you register with the state where you do business. But you don’t register with both.

It’s a bull market for advisers with books to monetize and for new people who want to come into the industry.

Resources: 

[1] https://www.cfp.net/knowledge/industry-insights/2022/03/the-role-of-independent-ria-firms-in-a-growing-financial-planning-profession

[2] https://investmentadviser.org/industry-snapshots/

[3] mckinsey.com/industries/financial-services/

[4] https://www.bls.gov/ooh/business-and-financial/personal-financial-advisors.htm#tab-6

[5] https://www.financial-planning.com/list/financial-advisors-from-brokerages-to-independent-firms-are-in-for-stark-changes-according-to-a-cerulli-study

Contributing Writer: Subject Matter Expert Charles McCain

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