Independent Advisers Expected to Gain Marketshare

“Multiple factors have contributed to the historical and expected growth of independent channels,” Kenton Shirk, associate director at Cerulli, says. “More than two-thirds of advisers indicate they would prefer the independent broker/dealer, registered investment adviser [RIA], or dually registered models if they decided to leave their current firms.”

Shirk says a key appeal in going independent is the additional autonomy inherent in the channel with regard to portfolio construction, operational flexibility and technology use.

“The economics can also be appealing to advisers,” he continues, “as payouts are higher and advisers become responsible for their own overhead decisions. Independent advisers can build long-term enterprise value in not only their own solo practice, but also in a broader business entity comprised of multiple advisers, staff, and infrastructure.”

Of course, setting up an independent advisory firm has its own risks and challenges, according to Cerulli’s “Advisor Metrics 2014: Capitalizing on Transitions and Consolidation” report. Many existing RIAs say they struggled during their early years of independence with tasks like evaluating and choosing technology, obtaining legal and compliance advice, and finding and retaining quality employees. A more crowded RIA environment also means greater competition for assets and deeper service expectations.

Cerulli notes that many recordkeepers and custodians have sufficient scale to offer broad and deep service offerings in partnership with RIAs.

“Now many of the [differentiating] services offered have become commonplace across platforms, such as practice management resources, financial planning support, and investment research,” Shirk continues. “Technology advances have also minimized the differences in platform capabilities across channels.”

The report concludes that projected marketshare gains in the RIA and dually registered channels will likely come at the expense of wirehouses and independent broker/dealers, as Cerulli expects both channels to lose significant asset marketshare over the next five years. 

More information on how to obtain Cerulli reports is available here.