RIAs Already Spread Thin, Even as Clients Want More Services, Fidelity Finds

Registered investment advisers saw a slowdown in organic asset growth through the end of last year, dropping to 4% growth at the end of 2022 from 8.2% growth in 2021, according to Fidelity Investment’s annual RIA benchmarking survey released Tuesday.

The decline was primarily driven by a lack of growth in new client assets under management, whether from newly added or existing clients, according to the firm. The drop was not due, as it may have been in the past, to clients departing or assets being withdrawn, says Anand Sekhar, vice president of practice management and consulting at Fidelity Institutional.

Sekhar, who helps guide the creation of adviser tools and resources, believes advisers failed to gain new assets in part from hustling to bring in new, but ultimately smaller, clients in 2022.

“One of the reasons we believe that this happened is because in 2022, advisers were often acting in a way that was reactive, as opposed to proactive,” he says. “Because they were reactive, they didn’t have time to drive new growth from their existing clients. … Yes, they did grow, so it wasn’t zero, but they were really focused on protecting that base.”

In Fidelity’s report, which surveyed 245 RIAs, those with less than $1 billion in assets under management had an 84:1 adviser-to-client ratio in 2022, higher than the 71:1 ratio reported in 2017. Advisers with more than $1 billion in assets faced the same issue, showing a 84:1 adviser-to-client ratio last year, as compared to a 72:1 ratio in 2017.

Meanwhile, downward pressure on fees also caused strain. The size and frequency of fee discounting increased in 2022, according to Fidelity, with 70% of firms with less than $1 billion in AUM and 89% of firms with more than $1 billion in AUM offering discounts to clients.

Holistic Planning

In today’s RIA market, Sekhar says it is crucial that advisories are staffed to appropriately serve the full spectrum of client needs, from legacy planning to retirement to medical expenses. But that also requires the appropriate staffing considerations and levels.

“You want to have enough bandwidth and capacity to serve your clients and delight them,” Sekhar says. “To some degree, that means being more proactive than reactive, and that requires more capacity.”

Part of that need comes from clients wanting more. Today, investment management, financial planning and tax planning are table stakes that sit on top of areas such as retirement plan servicing, estate planning and risk and insurance strategies. Among RIAs in the survey, more than 50% reported offering all of the above services, with those with at least $1 billion in assets more likely to offer those additional services.

“If you rewind back 30 years ago, you could be a stock picker in our industry and be a very successful adviser,” Sekhar says. “You can no longer be a stock picker.”

He points to Fidelity’s Advice Value Stack, which starts with a client’s overall fulfillment and continues through peace of mind and achieving goals before landing at the bottom with the actual money management part of advisement.  

In order to meet those needs, however, RIAs will often need to outsource areas such as investment management to spend more time with clients, Anend says.

Managing Demand

Fidelity’s survey found that among firms with less than $1 billion in AUM, 26% reported outsourcing investment management and portfolio construction, up 8 percentage points from 2021. Among firms with more than $1 billion in AUM, that rate was 29%, a 7 percentage point jump from 2021.

Among those who reported outsourcing, 45% among those with fewer assets reported using model portfolios, and 37% noted managed accounts. Among group with more assets, 41% reported using model portfolios, with 54% using managed accounts, according to the research.

“It doesn’t make sense for an adviser who wants to really spend the time to get to know their client to spend time trading a small account,” Anend says. “We find that those firms do outsource into managed solutions and others end up gaining back time.”

For the report, Fidelity used an independent third-party research firm to survey 245 RIAs from April 17 through July 4.