Page 14 - Investment Advisor January/February 2022

INDUSTRY INSIGHTS

By Timothy D. Welsh

5 Big Wealth Management Trends for 2022

This year should be more evolutionary than 2021 as macro-moves collide.

y any measure, 2021 was a trans-
formational year in the indepen-
Bdent wealth space. And 2022 is
shaping up to be even more evolution-
ary as various macro-trends continue
to collide, accelerating change for advi-
sors, clients and the ecosystem that
supports them.
Consider these five trends in your
strategic planning as you position your
business for success in the new year.

1. INDEPENDENT RIA GROWTH
ACCELERATES
Continuing their decades-long advance, that they need to evolve their products aging of RIA founders who lack succes-
independent registered investment and service set to move away from tra- sion plans (only one-third of the indus-
advisors continue to take market ditional channels and better customize try has one) is forcing them to consider
share from employee-based models. their platforms and practice manage- external sale options. The good news
According to Aite-Novarica Group, ment advice to accommodate the needs is they have more choices than ever. In
RIAs, including hybrids, control over of these clients. With a highly fragment- 2021, there were 88 different buyers,
$4.3 trillion in assets under manage- ed RIA marketplace in terms of size, meaning that there was roughly one
ment, including $3.1 trillion in high- style and geography, this becomes par- buyer for every two sellers. Combined
net-worth assets. ticularly challenging and is not for the with a flood of private equity financing,
Both of these types of independent faint of heart. But it is absolutely criti- record stock market valuations, a slew of
RIAs are enjoying strong growth, with cal to capturing share with this highly voracious buyers, the industry is rapidly
the number of fee-only RIAs increasing desirable marketplace. consolidating, particularly at the high
by 15% and the number of hybrid RIAs end of the market.
by 8%. AUM grew even faster thanks to 2. INDUSTRY CONSOLIDATION AT What this means for the industry
market gains, including 22% at fee-only THE TOP is that a couple of dozen national RIA
firms and 20% at hybrid firms. Last year also hit another record in firms are emerging with the size, scale,
This growth, however, has not been RIA M&A transactions, with more than service offering and growth engines that
equal, as the 80/20 rule is definitely 220 deals consummated, according to will become difficult for advisors every-
in play in RIA land. Larger RIAs ($750 DeVoe & Co. And 2022 is expected to where to compete against. As a result,
million-plus) account for just 19% of continue this frenetic pace. A perfect midsize and smaller firms will need to
the industry, yet manage more than storm of advisor demographics, along make a crucial strategic decision: Build
73% of the assets. As noted in many with market, tax and financing oppor- it or join it. Regardless of their decision,
studies over the years, size matters tunities, combined with high buyer the competitive dynamics in wealth
in delivering scale, efficiency and a demand, is creating an environment management will be forever changed by
broader service set, so the race is on for where advisors are almost compelled this “urge to merge.”
firms to continue to grow to stay profit- to sell. The multiples being offered are
able and keep up with the demand for nearly impossible to resist, particularly 3. CUSTODIAN CONFUSION
fiduciary advice. at the high end of the market for $1 CONTINUES
For the asset management and tech- billion-plus firms. How long does it take for two discount Adobe Stock
nology industries, RIA growth means For better or worse, the continued brokers to integrate? In the case of

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