If anyone needed further evidence that the RIA business has emerged as the major force within the personal finance space, take a look at Financial Advisor’s eighth annual RIA survey.
The 522 firms participating in this year’s survey managed about $607 billion in assets at the end of 2012, during which their collective assets grew at an 18.7% rate. When one takes into account the equity market performance in the first five months of 2013, it’s likely that their total is rapidly approaching $700 billion.
For millions of affluent Americans, the RIA model appears best structured to resonate with their needs. The term “fiduciary responsibility” may fly over the heads of many intelligent, relatively sophisticated Americans, but the concept of unbiased advice hits home.
The survey lists 143 firms with more than $1 billion in AUM, including many that are much larger. Most major metropolitan markets have several billion-dollar firms. Cincinnati, for example, has five.
Contrast this with the average wirehouse branch office, believed to be about $1 billion in assets, and you can see where the money in America is moving. One of the nation’s largest RIAs, Silvercrest Asset Management, currently is exploring an initial public offering. If it is successful, a handful of others could follow.
That said, challenges continue to confront this business, even if a bull market like the current one has a flair for masking problems. Regulatory and technology costs are headed in only one direction—north.
RIA’s success has not gone unnoticed on Wall Street and many top brokers are leaving brand-name firms to hang their own shingles. The upshot is that RIAs now compete with a lot more advisors who look just like them.
“One third of the people coming out of wirehouses do very good work, another third are average and the remainder are below average,” one experienced advisor told me. “But it is going to take the average client five to seven years to figure out who is good and who isn’t.”
Growth also comes at a cost for some firms. Some advisors are finding that the business they started two decades ago with a few colleagues is no longer the place they knew and are looking for exit strategies. Others would like to wind down, but are scared because they don’t know what to do next.
Nonetheless, firms of all sizes are designing their own growth strategies. Contrary to conventional wisdom that holds many RIAs reach the $300 million to $500 million asset level, then hit a wall and experience flatline growth, this group proved to be the fastest-growing group in our survey, with assets climbing more than 24%. So much for the experts.
Evan Simonoff, Editor-in-Chief
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