According to a report from the International Energy Agency last month, America is likely to become self-sufficient in energy by the end of the decade. But will the nation have enough financial advisors to satisfy the growing demand for advice?
Predictions that the market for advice will continue to grow are as old as predictions that it will get very crowded. In the late 1990s, Dalbar’s Lou Harvey predicted that the nation would have nearly 185,000 registered investment advisors by 2012, while Mark Hurley, currently CEO of Fiduciary Network, argued a handful of giant firms would come to dominate most major metropolitan markets.
In a sense, both men were wrong—but they were onto something. While there are only about 10,000 SEC-registered RIA firms, folks who survey the business in detail believe those firms employ more than 75,000 individuals, most of whom provide advice. And that doesn’t account for all the state-registered RIAs. Virtually, every major metropolitan market today has several RIA firms with more than $1 billion in assets under management; some have many such advisory businesses. This places them in the same territory as a major wirehouse branch based on assets, if not clients.
But despite the proliferation of hundreds of RIA firms with billions in assets situated around the nation, the notion of a market dominator still looks implausible. Simply put, the character of the advice business doesn’t lend itself to the kinds of economies of scale pervasive in retailing and consumer products, where one tends to find giant brands and businesses.
That said, the expanding demand for advice is creating its own supply. While a young cadre of tomorrow’s advisors are coming out of the nation’s universities, others are moving quickly to capture the demand.
According to Nick Georgis, vice president of practice management and business strategy at Schwab Advisor Services, the exodus of wirehouse brokers to the RIA and independent broker-dealer universe is starting to make its imprint on the competitive landscape. Specifically, advisors are far more likely to find a rival who looks just like them right down the street.
Throw in the increasingly inert, recalcitrant client mindset, and the ability to convert new prospects into clients becomes a glacial, time-consuming process. That’s particularly true in the current environment, where Georgis says clients are interviewing more advisors than ever and agonizing over their decisions whether to move their money or simply do nothing.
That’s why Georgis thinks, at least for the moment, that eight or nine firms are reaching $500 million to $1 billion in AUM and seeing their business flatline for every two or three firms that reach that milestone and keep sailing fast and straight.
Evan Simonoff, Editor-in-Chief
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