Registered investment advisors continue to grow their advisor headcount at a faster pace than other channels and by the end of 2027 are expected to control more than 30% of the industry’s professionals and 31% of assets, according to a Cerulli Associates study released today.    

The Boston-based firm’s 2023 report on the U.S. RIA marketplace found that, from 2012 to 2022, headcount at independent RIAs had a compound annual growth rate of 5.2% and at hybrid RIAs of 3.5%. The next closest channel, retail bank broker-dealers, posted 1.7% headcount growth, followed by national and regional broker-dealers at 1.3%.

All other retail advice channels posted negative growth over those 10 years: wirehouses shrunk by 1%, insurance broker-dealers by 1.9% and independent broker-dealers by 2.2%. Pitted against RIA gains, these numbers pulled down the industry average for growth to 0.03% at a time when demand for financial advice is on the upswing.

The bear market of 2022 caused assets to stagnate even as the number of advisors increased. “Despite lackluster investment performance, which saw both RIA channels down about 13.1%, we saw significant firm and headcount growth in 2022,” said Stephen Caruso, a Cerulli senior analyst who leads RIA research and who authored the report. “Headcount grew across both channels at 8.6% year over year. And as we wrap up our year-end 2023, we anticipate RIAs will make additional strides.”

That headcount growth also correlated to advisor-managed asset growth, the report stated. Against a total industry compound annual growth rate of 7.3%, independent RIAs grew their assets 10.9%, and hybrid RIAs came in second at 10.5%. National and regional broker-dealers landed in third place at 8.2% growth, and retail bank broker-dealers in fourth place at 7.7% growth.

Asset growth at independent broker-dealers, wirehouses and insurance broker-dealers came in below that 7.3% industry average at 6.7%, 5.3% and 4.7%, respectively. “While the industry is shifting to fee-based, some advisors still find the need for brokerage assets and brokerage product types, and they can fill the gap there with the hybrids,” Caruso said.

Between now and the end of 2027, Cerulli projected that RIAs will take an additional 1% of asset marketshare roughly every year to move from holding 27% today to 31% by then.  

So many financial advisors see the future of the industry in the RIA model, that the number of small firms grew in 2022 while the number of larger firms contracted, the research found.

Caruso said that more than 2,000 new small firms popped up that year, reversing a declining trend. In 2022, firms with less than $100 million in assets under management made up 62% of the industry, an increase from the year 2021 when small firms made up 57% of the industry.

“This is a renewed approach to the long-term growth prospects of the channel. For so long we've seen the mega RIAs take hold of the market,” Caruso said, adding that firms with more than $1 billion in AUM represented 7% of the industry, those with $500 million to $1 billion represented 6%, and those with $100 million to $500 million represented 26%.

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