Advisor headcount at independent registered investment advisor firms continues to grow faster than in any other advisory channel, despite the huge investments in technology and support at the top wirehouses, according to research firm Cerulli Associates in Boston.
A recent survey showed the number of independent RIAs firms grew 2.4% annually over the last 10 years, while the number of advisors at those firms grew 5.2%. As of the end of last year, there were 18,558 retail-focused RIAs with 78,282 advisors and $7.1 trillion in assets under management, the survey said.
Meanwhile, among the top 25 broker-dealers ranked by assets under management, there were 189,762 advisors representing roughly two-thirds of the entire financial advice industry. Broker-dealers continue to dominate headcount by simply by virtue of their size, reported “Cerulli Edge—U.S. Advisor Edition,” but they lose marketshare every year as advisors exchange big-firm support for the flexibility and autonomy of independent practices.
Over the last 10 years, advisor rolls have declined -1.0% annually at wirehouses and -2.2% annually at independent broker-dealers, Cerulli said.
The firm predicted that headcount across the industry will remain flat over the next five years, as newcomers will not outpace retirees. However, independent and hybrid RIAs will continue to grow their headcounts while broker-dealers will continue to lose theirs.
Together, independent and hybrid RIAs hold 26.9% of advisor headcount and 26.7% of AUM, while wirehouses, broker-dealers and independent broker-dealers hold 47.5% of advisor headcount and 62.8% of AUM.
If the current trend continues, by 2027 the independent and hybrid RIAs will control nearly a third of assets, or 31.2%. The staffing advantage may go to the hybrids, the report said, as hybrid RIAs have on average 8.9 advisors per firm, and independent RIAs have an average of three.
“Although the wirehouse channel dominates industry assets and average advisor productivity, the flexibility and higher payout percentages of independence is appealing to many advisors,” wrote Andrew Blake, associate director, in the report. “B/Ds will need to continue to leverage the benefits of working under corporate scale, which include access to technology, training, and client resources, to highlight the alluring aspects of affiliation with a major B/D. Otherwise, they risk seeing channel migration trends continue.”
One area where wirehouse advisors have done particularly well is in the gathering of high-net-worth and ultra-high-net-worth clients. With reinvestment in technology, training and client resources, the largest broker-dealers will remain formidable competition for RIAs.
“For independent advisors, hiring junior advisors, analysts, and support staff can be a costly and time-consuming process that may not be alluring to inexperienced business owners,” Blake wrote, adding that on top of running their businesses day-to-day, RIAs now have to deal with the Securities and Exchange Commission’s proposed cybersecurity requirements, which brings a new layer of addressing risks and reporting written policies and procedures. “Challenges like this are magnified for fully independent advisors.”