RIAs are still the gazelles of asset gathering, but the online channel is a cheetah gathering speed.
According to the most recent “Fund Distribution Intelligence” report from Lake Success, N.Y.-based Broadridge Financial Solutions, RIAs were the fastest growing channel for fund investing in the first quarter of 2017, with new assets of $52 billion.
All told, RIAs are responsible for $2.5 trillion of retail mutual fund and ETF assets, good enough to remain the largest retail channel. The second-largest channel by assets, independent broker-dealers, had approximately $2.46 trillion in assets, while wirehouses accounted for nearly $1.8 trillion in assets.
The online channel, also called the discount channel, while much smaller than the top three, is currently the second-fastest growing industry channel in terms of assets, attracting $39 billion during the first quarter of 2017. Online investing now accounts for $500 billion in assets all told. Broadridge notes that low-cost, diversified and technologically minded asset managers are vastly outpacing the rest of the industry in asset growth.
Two fully integrated product and distribution firms, Vanguard and Charles Schwab, experienced 10 percent organic asset growth in the 12 months ending March 31. The rest of the industry reported a combined organic growth of just 2 percent over the same time period.
Unsurprisingly, Broadridge reports that the direct online channel is the fastest growing segment on a percentage basis, with a 61 percent asset increase in the 12 months ending March 31. During that time, ETF assets in the online channel grew by 36 percent, while mutual fund assets grew by 76 percent.
Wirehouse net new assets came in at $23 billion, a 1.4 percent increase, while $57.4 billion flowed out of the independent/registered broker-dealer channel, a 2.5 percent decrease in assets.
Broadridge says the growth of both online and RIA channels is driven by passive products. In the 12 months ending March 31, online channel users placed 92 percent of their net sales into passive products. In the first quarter of 2017, ETF assets increased by 4.3 percent to $2.9 trillion, with the largest flows coming from the RIA channel. RIA mutual fund assets increased by 1 percent to $15 billion in the same time period. More than 53 percent of RIA equity fund assets are passively managed, while 56 percent of online channel assets are in passive products.
Both Vanguard and Schwab have approximately two-thirds of their AUM in passive products, notes Broadridge, which accelerates their asset growth. The rest of the industry has approximately one-third of its assets in actively managed products.
Both firms also boast rapidly growing retail robo-advisor platforms: Vanguard’s $50 billion AUM Personal Advisor Services and Schwab’s $16 billion Intelligent Portfolios drove much of the online growth through 2016.