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Autonomy, financial gain, and marketing flexibility motivate advisors to establish independence
April 2020, BOSTON—Advisor movement into the registered investment advisor (RIA) channel has buoyed overall channel growth, according to the latest The Cerulli Edge—U.S. Asset and Wealth Management Edition. Broker/dealer (B/D) advisors are seeking increased autonomy over how they run their practices and are motivated by the perceived economic advantages of the RIA model.
Specifically, Cerulli finds that independent broker/dealers (IBDs) who prefer the RIA model report higher payout (43%) and greater marketing flexibility (35%) as major factors in considering the RIA channel. According to senior analyst Marina Shtyrkov, “The desire for independence is particularly pronounced among national and regional B/Ds, many of which may display a stronger entrepreneurial drive compared to their wirehouse peers. Perhaps given the advisor-centric cultures at some of the largest national and regional B/Ds, 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. 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.
Nonetheless, despite the benefits, IBD advisors’ concerns include assuming greater compliance responsibilities and increased liability when operating independently. According to Shtyrkov, “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.” 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.
NOTES TO EDITORS:
These findings and more are from The Cerulli Edge―U.S. Asset and Wealth Management Edition, April 2020 issue.
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