Who's Winning?

The primary reason we decided to embark upon our annual survey of leading RIAs four years ago was that it could provide readers with a glimpse of the state of the industry.

What the numbers reveal is an emerging profession buoyed by strong fundamentals even as it wrestles with the stresses of a sharp, sudden downturn  in revenues of proportions that no one correctly anticipated. As Eric Rasmussen details in the cover story starting on Page 48, the median firm in FA's survey enjoyed a 13% increase in clients from 215 to 243 in 2008.

Taking all their assets together, the 380 firms in the survey experienced a relatively modest 13% decline in AUM last year, though that number includes a few mergers of very large firms. The mean client of a firm in the survey saw their assets fall 23.7%, painful but still below the 38% drop in the S&P 500.

Since participation in the survey is voluntary, it's quite possible that many RIA firms that experienced substantially worse results opted not to respond to this year's survey. But by and large, the figures in our survey tend to be corroborated by other independent research conducted by Tiburon Advisors that finds independent RIAs remain the fastest-growing sector of the personal financial services business.

The reason I raise some of these issues is that a great deal of market research on affluent investors indicates that a whole lot of money is preparing to move in the next 18 months in reaction to the events of 2008. Surveys argue that as many as 70% to 90% of affluent investors plan to change advisors, may be wildly exaggerating this potential movement of assets.

At the same time, some commentators are claiming that fiduciary RIAs are virtually invulnerable to any client attrition, except in cases where the advisor shows a pain-in-the-neck client the door. This claim also strikes me as patently absurd.

In this month's issue, two of our columnists, Andy Gluck and Mike Martin, either state or infer that advisors are more vulnerable to losing clients in the wake of last year's washout than conventional wisdom in the business would assert. Gluck believes that some clients may opt to take the do-it-yourself route or move to a discount brokerage's advice platform, while Martin claims advisors who aligned themselves too closely to modern portfolio theory are at risk.

I don't pretend to have the answer and I'm dubious that anybody does. The last severe bear market in 2000-2002 turned out to be a golden age for independent advisors, as many of them experienced a dramatic uptick in new business and the profession proved to the rest of the financial services community that it had staying power while many giants foundered.

Although hardly guaranteed, there's no reason why the current era can't produce a similar outcome.

Evan Simonoff, Editor-in-chief
E-mail me at [email protected] with your opinion.