Page 18 - Investment Advisor June 2023

InDuSTRY InSIGHTS

By Timothy D. Welsh

Where did All the organic Growth Go?

The rapid growth of the RIA market has led to advisor complacency on the
marketing front, and the cracks are starting to show. Fortunately, advisors

have some powerful ways to fix them.

he independent RIA industry
remains the fastest-growing
Tsegment in financial services, a
crown it has held onto for the past
several decades.
But despite this continued growth —
which is tied to RIAs’ ability to win in
the marketplace by leveraging their fidu-
ciary, fee-based advice models — there
remains an underlying and troubling
concern: the majority of recent “growth”
has been coming from market apprecia-
tion and accelerating merger and acqui-
sition activities, rather than from true control 93% of all RIA assets. In other client assets in its wealth unit, showing
organic sources, such as current clients words, 90% of RIA firms are struggling that the wirehouses are on a roll.
depositing incremental new assets and to remain viable businesses.
the onboarding of new clients. According to Schwab’s 2022 RIA Industry under Pressure
Market appreciation has been a major Benchmarking Study, the average RIA At the same time, discount brokers and
factor in the growth of the industry and firm had negative revenue growth over digital players are promising investors
perhaps has led to complacency on the the past five years when market appre- comprehensive wealth services for a frac-
marketing front for advisors, as strong ciation is excluded — using a traditional tion of what other firms charge. Industry
bull markets drove incremental fee- 60/40 market portfolio as a proxy for RIA consolidation through M&A is creating the
based revenues year after year, poten- investment allocations. This is becoming RIA mega-firms mentioned above, which
tially covering up for a lack of focus. As an increasingly troubling development are sopping up the majority of the indepen-
international cricketer Kapil Dev once for the long-term sustainability of the dent-advisor industry’s organic growth.
said, “If you play good cricket, a lot of industry, as competition increases rap- Compounding this increasingly com-
bad things get hidden.” idly from both new and old sources. petitive environment is the aging of the
Once viewed as dead in the water and industry — in terms of both advisors
MeGA-rIAs, WIreHouses obsolete after the Great Financial Crisis of and investor clients. As popular indus-
stIll on A roll 2007-2008, the traditional wirehouses are try consultant Mark Tibergien, the for-
While growth has been consistently remaking themselves. They’re co-opting mer CEO of Pershing Advisor Solutions,
strong for the 30,000-plus RIA firms the messaging of independent advisors explained, “The RIA industry was built
in the industry, it has not been equal. by referring to their financial planning by baby boomers for baby boomers.”
Research from the Investment Adviser capabilities in broad-based marketing This means that as these baby boom-
Association shows that the vast majority campaigns, which has resulted in regular ers enter retirement in massive numbers
of industry growth has been accruing to headlines that broadcast “record-break- each year, they’re no longer accumulating
the largest firms, such as the emerging ing” wealth management revenues for assets for their aging advisors to manage.
market dominators that each have north these once-tarnished Wall Street brands. Rather, they’re decumulating assets, and
of $5 billion in assets under management. In fact, one wirehouse firm brought by taking withdrawals to fund their retire-
These mega-RIAs represent only 10% in $110 billion in net new assets last ment, this further constricts firm growth. Adobe Stock
of the total number of advisory firms, yet quarter, and now has $4.6 trillion in At the same time, the number-one

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