Midsize RIAs Rely Heavily on Low-Cost Mutual Funds, ETFs

This defies the prevailing wisdom that the RIA marketplace is splintered, with all RIAs assumed to be unique. Thus, it is possible for asset managers to develop a strategy to work with different RIA groups—and they would be wise to target the underserved, mid-RIA market, Cerulli Associates said. Further, unlike their broker/dealer counterparts, midsize RIAs do not require funds that carry revenue-sharing commissions—rendering this subset of the RIA channel more profitable than dealing with large RIAs or broker/dealers, Cerulli said in its August report on U.S. asset management.

It is also easier to reach RIAs than it is broker/dealers, which have gatekeepers to screen product offerings, Cerulli noted. In addition, RIAs do not have the luxury of sales support, market commentary, asset-allocation tools or research.

Half, or 49%, of midsize RIAs said they use mutual funds, compared with 39% of RIAs with more than $500 million in assets under management, Cerulli found in the survey.

The key is to approach midsize RIAs with low-cost mutual funds and ETFs, Cerulli said. “Advisers within midsize practices have neither the time nor the accumulated expertise to personally manage client relationships alongside well-diversified portfolios built upon individual securities,” the Cerulli report said. “Thus, these advisers rely on fund managers to fill gaps in the money management expertise of the RIA practice.”

Tyler Cloherty, senior analyst at Cerulli Associates, commented: “Industry  experts quip that ‘every RIA is different,’ but they neglect the fact that distinct product preferences separate midsize firms from their larger counterparts.”