The registered investment advisor channel is growing thanks to an influx of breakaway advisors from other channels, and these advisors are chiefly motivated by the desire for more pay and marketing flexibility, says a new report from research and consulting firm Cerulli Associates.
Among other areas covered in the latest “The Cerulli Edge—U.S. Asset and Wealth Management Edition” report, it analyzed data on independent broker-dealers who indicate they would prefer to transition to the independent RIA or hybrid RIA channels if they leave their current firm.
Of those, the major factors cited in considering the RIA model were higher payouts (43% ) and greater marketing flexibility (35%). Other major factors included the ability to boost the financial value of their practice (32%) and flexibility in setting fee levels and structure (28%).
“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,” said Marina Shtyrkov, Cerulli senior analyst. “Perhaps given the advisor-centric cultures at some of the largest national and regional B/Ds, these advisors feel more comfortable fully embracing independence.”
But IBD advisors also have some doubts about jumping into the RIA space. Their top concerns include “assuming greater compliance responsibilities” (52%) and “greater regulatory liability when operating independently” (49%).
Indeed, many of these IBD advisors realize the independent RIA model has its potential challenges and costs, and that’s reflected in their other major concerns such as losing clients during the transition (35%), as well as assuming greater operational requirements (33%) and assuming technology responsibilities (32%).
But as noted in Cerulli’s report, a growing number of outlets exist to help breakaway advisors ease their transition to RIA life by providing platforms, technology, and overall operational and regulatory support that breakaway IBD (and wirehouse) advisors had at their previous companies.
The proliferation of these types of service providers has helped attract new advisors to the RIA model.
“Strategic partners can help advisors overcome those fears and explore their options by illustrating how they can help address specific concerns,” Shtyrkov wrote in the report.
She also addressed advisors’ fear of losing clients during the transition. “Cerulli’s data shows that advisors who recently switched firms typically retain the majority of client assets after the move,” she said.
Shtyrkov offered that while advisor migration to the RIA model will slow during the uncertainly of the coronavirus crisis, she expects continued strong growth in the RIA channel when normalcy resumes.