Cerulli Report Highlights Areas for RIA Growth

The industry has grown from approximately $950 billion and 11,745 firms in 2005 to $1.4 trillion and 14,451 firms in 2007, according data from Cerulli Associates.

Dually registered advisers saw the greatest growth over the last three years in terms of number of firms, indicating this is an entry point for many new RIA firms, according to “Registered Investment Advisors (RIAs): Evaluating Opportunities in a Maturing Marketplace,” the most recent release in The Cerulli Report series. Additionally, Cerulli said advisory firms without a broker/dealer affiliation are generally larger, indicating many firms drop their broker/dealer affiliation after reaching a certain level of scale.

Challenges for RIA firms reported by Cerulli included investing in technology and people – two infrastructure investments an RIA must make in order to help their firm run more efficiently. Almost half (47%) of RIAs said they believe compliance is the greatest challenge facing them currently, the press release said.

Areas and Aid for Growth

More client wealth and referral sources for clients are two marks of an advisory firm that is growing quickly. Cerulli said growing adviser firms address wealthier clients and shape their marketing plans in order to attract more target clients.

In addition, Cerulli identified multigenerational wealth planning as an emerging advice trend for RIAs.

Service agents can be a source of the necessary tools to help an RIA practice grow. Cerulli said in the release RIAs who use service agent technology experience more efficiency as many of the connections between programs are already built in.

On the other side of the coin, best practice-service agents understand they can grow their business by helping their RIA clients grow business. However, Cerulli warned service agents must respect the independence of RIAs when demonstrating tools for their business.

Cerulli found an RIA’s decision to use a specific service agent is often driven by several elements of his or her practice, including AUM (assets under management) and the type of practice. RIAs will choose to use the service agent whose services best align with their business.

The Future of the RIA Industry

Going forward, many RIAs are open to new ideas on how to build better client portfolios, Cerulli said. Providers selling into RIAs would do well to remember it is not a classic, performance-oriented sale – 66% of RIAs always use an investment policy statement, compared to 23% of broker/dealer reps. Instead, the sales focus should be more institutional, with a focus on investment process and risk controls.

Cerulli reported new advisers are entering the industry with better education and more experience than ever before, and are more frequently coming from independent firms and insurance broker/dealers than wirehouses. Additionally, the RIA channel has also become an entrance point for second-career professionals who wish to become financial advisers, the press release said.

Finally, Cerulli said as the early entrants to the RIA space move toward retirement, they are beginning to think about their succession plans – 26% of RIAs that plan to sell their practice plan to sell it to existing employees.

More information can be found at www.cerulli.com.