Today’s FundFire (an on-line service of the Financial Times) contains an article on the growth prospects for RIAs; click here to read the entire piece. While the article focuses on Focus Financial Partners, no pun intended, the comments are germane for other industry participants as well.
My comments center on a few primary themes, one related to the overall growth prospects for RIAs, and the other on how these firms are maintaining and in some cases increasing their competitiveness.
While there may have been some slowdown in the trend toward advisors going independent this year (depending on who you talk to and which studies you look at), this slowdown is more a symptom of the current financial uncertainty then a sign that the trend toward independence has reversed. What we learned in 2008 is that economic and market uncertainty, rather than signaling large moves in assets, leads to a period of inaction – many advisors don’t want to rock the boat and make decisions until the future becomes clearer.
This is the case for clients as well as advisors. The attractiveness of leaving a wirehouse for an RIA remains for advisors that either want an equity stake, as some of these firms are offering, are looking for more independence in the decision-making process and/or perhaps a chance to escape the reputational risk that hampers many of the wirehouses today. Now, I am not saying that the wirehouses are going away. Some advisors like the safety of the wirehouses, and the fact that they don’t have to make management and/or other far-reaching decisions. They are willing to put up with the increasing amounts of compliance and red tape.
The second point – competitiveness. Larger RIAs and aggregators, as the article points out, are increasing their product offerings – specifically in the areas of SMAs, UMAs and alternative investments. In many case, they are teaming with product providers. My comments here are that in many cases, it is easier for these RIAs to buy the product platforms as opposed to building them.
Their particular area of expertise is probably not in product development – so why force the issue? In my mind this situation is similar to many bank brokerage platforms, where the quickest way to grow and compete is to utilize existing products. The amount of money, time, and organization that it takes to build competitive investment products is daunting for firms that have never done it before.
