The independent registered investment advisor space has grown at a much faster pace than other wealth management channels, according to TD Ameritrade, and will continue to be the most rapidly expanding segment of the industry.
Even representatives still associated with a brokerage are seeing greener pastures in the RIA space, according to TD Ameritrade Institutional’s "2020 Break Away to Independence Survey" of RIAs and brokers considering breaking away. The survey was released on Thursday at the National LINC conference in Orlando.
“RIA growth is off the charts” said Tom Nally, TD Ameritrade Institutional's president, in his Thursday opening remarks at the conference. “RIAs have outpaced the overall market.”
Nally told his audience of advisors that RIA assets grew 195% between 2006 and 2016, from $1.6 trillion to $4.8 trillion. Much of that growth has come at the expense of the major wirehouse brokerages. Independent advisors’ market share increased by eight percentage points over that decade, while wirehouses suffered a 10-percentage-point decline in market share.
In the breakaway survey, 55% of the brokerage representatives said that they were planning to break away within the next 12 months, up 11 percentage points from the last time the survey was fielded in the spring of 2019, when 44% of the broker respondents were eying a breakaway.
Almost half of the broker respondents report feeling more strongly now about breaking away than they did 12 months ago.
The most commonly cited reasons for contemplating a move to the RIA channel remain compliance and pricing pressures. Dissatisfaction with compensation is also a rising trend among brokerage representatives – 44% of those respondents said they were not satisfied with their compensation, up from 33% in the 2019 survey, and 75% of respondents believe that they’ll be able to earn more as an independent RIA.
The brokers also cited attracting new clients and handling withdrawals by aging clients as their largest challenges at their current firms.
But that doesn’t mean brokers are enticed by the idea of joining an existing RIA. In fact, the proportion of brokers interested in joining an existing RIA dropped to 9% from 33% in the 2019 survey.
RIAs in the survey tended to work shorter weeks and oversee more assets. While brokers in the survey oversaw an average of $95 million in client assets and worked 44-hour weeks, RIAs reported overseeing an average of $214 million in client assets and worked 41-hour weeks.
The RIA portion of the survey layered in more arguments for breaking away: 80% of the RIA respondents said their quality of life has improved since breaking away; 75% said the transition to independence was easier than they had expected; 72% said that their technology has improved and 70% said that separating from their employer’s brand has actually helped their bottom line.
Nally said that over the next decade TD Ameritrade expects the RIA channel to continue to grow at the expense of traditional wirehouses, projecting a more than 2% increase in market share for RIAs and a nearly 4% decline in market share for wirehouses.
That shift makes the RIA channel the focal point of innovation and growth for the greater wealth management industry, according to Nally.
“There’s so much capital flowing into the space, whether in the form of private equity or fintech innovation,” said Nally. “So many people are now following the RIA business, and they’re looking at it as the future of wealth management.”
The 2020 Break Away to Independence Survey was fielded in October and Novemebr 2019 among 349 independent RIAs and 100 brokers who said that they might go independent within the next two to three years.