RIA Channel Outpaces Industry Growth

Asset management firms with more than $1 billion in assets are driving registered investment adviser (RIA) channel growth.

RIA channel growth has significantly outpaced industry growth and drawn the interest of asset management distributors, according to research from Cerulli Associates titled “State of the RIA Marketplace 2012.” RIA assets grew by 13% in 2011 due to asset flows from adviser movement, client choice and market return effects. The rate far outpaced the industry, which had a 1.3% growth rate.

“Firms with over $1 billion in assets tend to draw more of their assets from high-net-worth assets. These aggregator RIAs have been successfully recruiting advisers who want to focus on serving clients instead of running a business,” said Tyler Cloherty, senior analyst at Cerulli.

In the report, Cerulli analyzes opportunities for new entrants looking to approach this segment and identify how existing providers can optimize their offerings to capitalize on trends and preferences of the aggregator RIAs, as well as the smaller mid-market RIAs. The latter tend not to have centralized investment committees and are also strong users of mutual funds, according to the report.

“RIA channel growth is attributed to adviser recruitment. The appeal of the RIA channel has drawn over 1,500 advisers from across the industry," Cloherty said. “The success of the dually registered channel has shown the largest growth rate in assets and advisers. However, asset managers have struggled with how to address advisers straddling both the independent broker/dealer and RIA worlds.”

A net of 2,351 advisers transitioned into the RIA and dually registered channels in 2011, bringing with them $90 billion in assets. As a result of the expanding RIA channel, broker/dealers and asset managers should embrace the permanence of dual registration as a business model and align their service models accordingly, the report suggests.

In order to continue generating growth, the RIA channel must provide sustainability through the hiring of new advisers, but these additions must outpace firing and advisers’ retiring. As growing organizations within the channel add structure, new hiring will become priority because of its cost effectiveness compared with the capital required for new adviser recruitment, the report said.

The report is available for purchase by contacting CAmarketing@cerulli.com