RIAs Gaining Market Share While Wirehouses Shrink

Cerulli Associates also found that 67% of national sales managers rank increasing the technical skills of existing wholesalers as a major priority.

New research from global analytics firm Cerulli Associates suggests that asset managers identify registered investment advisers (RIAs), broker/dealers, mega teams, and home-office due diligence relationships as the groups with the most opportunity to generate revenue and increase market share.

These groups are also spearheading the trend toward more data-focused interactions, which traditionally have been reserved for the institutional space, the firm notes

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“In our survey of national sales managers, 67% rank increasing the technical skills of existing wholesalers to address more sophisticated adviser teams as the top priority,” says Emily Sweet, senior analyst at Cerulli. “We believe this expanding institutional influence in the retail market, especially in the areas growing most quickly, will continue for the foreseeable future.”

According to Cerulli Associates, 95% of national sales managers agree or strongly agree that data analytics are essential to making key decisions in areas such as budget planning and adviser segmentation. The firm expects asset managers to keep increasing analytics resources as long as internal and partner firm inputs become more reliable and adoption by sales teams increases.

The firm expects RIAs to continue to increase their market share while that of wirehouses decreases. Cerulli Associates found that in 2015, the RIA channel grew assets faster than any other adviser channel at 6.2% growth versus an average of 0.9% for all channels. Meanwhile that year, the wirehouse asset base shrunk 1.9%, ranking as the poorest-performing adviser channel in terms of asset growth.

Cerulli projects that independent RIAs and hybrid RIAs will together increase asset market share from 23% in 2015 to 28% in 2020.

“While wirehouses still hold a substantial share of assets, RIAs are the growth story,” explains Kenton Shirk, associate director at Cerulli. “To build a relationship within an independent practice, wholesalers need to truly understand a firm’s investment philosophy and decision-making process.”

Cerulli’s latest report, U.S. Intermediary Distribution 2016: Evolving Roles in Distribution, focuses on the convergence of the institutional and retail markets and its influence over distribution strategies, the firm says. In addition, the report analyzes trends related to adviser product use, portfolio construction, and allocation changes across industry segments.

It can be purchased online here.

Texas Judge Rejects Most Support Briefs in DOL Fiduciary Litigation

Just two out of an increasingly large pile of amicus briefs filed in relation to litigation seeking to halt the new DOL fiduciary rule will be considered—both of them ostensibly pro-DOL in their argumentation.

The judge presiding over industry challenges filed against the Department of Labor (DOL) fiduciary rule will only consider “friend of the court” or “amicus” briefs filed by the Financial Planning Coalition (FPC) and the American Association for Justice (AAJ).

In a short declaration explaining her decision, District Judge Barbara M.G. Lynn notes these briefs, unlike those that will not be considered, actually contain novel arguments compared with those presented by the plaintiffs and defendants. Her decision regarding the FPC brief in particular also highlights the fact that the FPC has a unique perspective to weigh in, since it is “the only filing party representative of financial professionals in the United States already operating under a fiduciary standard.”

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“The court has discretion to consider amicus briefing where the proffered information is timely and useful or otherwise necessary to the administration of justice,” Judge Lynn writes. “In this case, both sides are represented by sophisticated counsel, and the court has granted generous page allocations for briefing. The court determines that Financial Planning Coalition’s motion should be granted because its proposed brief provides a unique perspective. The coalition is the lone amicus representative of financial professionals in the United States already operating under a fiduciary standard, and is therefore able to provide a practical perspective different from that of the parties. Further, Coalition’s brief does not repeat arguments made by either party.”

The FPC brief, it’s safe to say, is staunchly pro-DOL and pro-fiduciary. The brief centers around three critical points of argument. First, the coalition argues, investors currently suffer from a lack of complete, truthful disclosures, and this is having a measurable negative effect on retirement outcomes. Second, “empirical research and the coalition’s own practical experience confirm that middle income investors will retain ready access to professional financial advice under a fiduciary standard of conduct.” And finally, based on CFP professionals’ experience under internal standards similar to those required by the Best Interest Contract Exemption, the coalition argues the rule provides “a workable solution to allow for advisers to receive transaction-based compensation while providing advice that is in the best interests of the client.”

Judge Lynn goes on to explain that American Association for Justice’s motion should also be granted full consideration, “because AAJ’s brief focuses on a narrow legal issue related to the Federal Arbitration Act and does not repeat arguments made by other parties.”

While this brief is certainly more narrowly focused than others, it can also be considered favorable to the DOL’s arguments, with AAJ suggesting the fiduciary rule’s class-action provision “is a valid exercise of the department’s authority that does not conflict with the Federal Arbitration Act.”

“DOL acted well within its statutory authority when it conditioned an exemption on the availability of class actions,” AAJ states. Further, according to AAJ’s analysis, the rule is “fully consistent with the Federal Arbitration Act … The rule does not preclude the enforcement of any arbitration agreements … and covers only those who choose to invoke an exemption … The rule can—and therefore must—be harmonized with the Federal Arbitration Act’s policies.”

Judge Lynn concludes that “no amici will be able to present oral argument at the hearing set for November 17, 2016.” The full text of her decision is here.

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