The RIA Industry:
No one is staying in their lane, and that’s a good thing
February 9, 2021
By Bernie Clark, head of Schwab Advisor Services
Independent advisors are aggressive by nature. As is the industry they belong to, which becomes more sophisticated by the day. What was once a cottage industry is now one of the fastest growing segments in financial services. Today, it’s a $5.7 trillion space.
Assets managed by independent advisors nearly tripled between 2009 and 2019. Why? So many reasons… the popularity of fee-based advice, the demand for and adoption of financial planning overall, and the increased awareness of the independent model.
"Our clients’ success is our success at Schwab. While independent advisors have been gathering assets, we have continued to capture market share, as has TD Ameritrade Institutional. Together, we now serve $3.1 trillion in assets on behalf of our registered investment advisor (RIA) clients."
Bernie Clark, head of Schwab Advisor Services
In 2020, Schwab Advisor Services and TD Ameritrade Institutional attracted over $200 billion in net new assets which is a direct result of the momentum of this profession.
We see growth from new RIAs and existing RIAs, and, it still follows the 80/20 rule — 80% comes from advisors who are growing successfully and accumulating more assets in the marketplace, many from the traditional models, and 20% comes from “corner office brokers” going independent and bringing their teams with them.
Consolidation has been a big part of this story for the last several years. Cerulli reports that 60% of RIAs are interested in acquiring another firm. And they see the acquisition opportunity nearing $3 trillion over the next 5-10 years.1 That aligns closely with conversations I have with our clients, and what we have been seeing from consolidators.
- Platform Providers: Allow RIAs to "rent" an end-to-end operating and support platform, and do not take an equity stake in affiliates.
- Financial Acquirers: Systematically acquire RIAs to aggregate individual firms in a fragmented market and realize financial gains through a liquidity event or cash flow distributions.
- Strategic Acquirers: Large RIAs that systematically acquire advisory firms to grow market share, enter new geographic regions, and achieve other growth-oriented strategic objectives.
- Emerging Consolidators: Have demonstrated recent pattern of consolidation but have yet to reach substantial scale.
As the ecosystem continues to expand, and more equity capital surfaces, the story gets more and more interesting. Consolidators are all delivering more in the way of capabilities and differentiation, and as a result, they’re not very good at staying in their own lane. I see that as additive to the space, though, and something that will allow more advisors to become independent and grow quickly.
To the benefit of their clients, independent advisors haven’t stayed in their lane either, and they continue to increase the breadth and depth of what they offer.
RIAs know that scale and efficiency are the way forward. And they have plenty of choices in front of them to make it happen. They can partner, outsource, delegate or keep it all in house. Whether a firm chooses an end-to-end operating and support partner, a turnkey asset management program or seeks strategic guidance and capital to pursue acquisitions while maintaining their brand, no one is standing still.
No matter how sophisticated the space becomes, this business is about relationships and trust, and that will not change. Advisors continue to look for ways to increase the time they spend with clients. Last year 29% of RIAs delegated investment selection to a third party compared to just 10% in 2018.2
The overall market is estimated to be at more than $20 trillion, with approximately $17 trillion held at independent broker-dealers, regional broker-dealers and banks and wirehouses.
Note: CAGR = Compound annual growth rate. AS = Advisor Services. TDAI = TD Ameritrade Institutional. Source: The Cerulli Report, U.S. RIA Marketplace 2020. 1. Includes both independent and hybrid RIAs.
With a superior model, RIAs have a tremendous opportunity ahead for continued growth. And we’re here for it. That’s because we’re all in. Schwab is invested in RIAs and the future of this profession. This business represented more than 50% of Schwab’s core net new assets and nearly a third of its revenue last year.
As we bring Schwab and TD Ameritrade together, we are going to build the experience of the future, while delivering on the promises we have made to our clients.
It’s always about the experience. And relationships. And it includes the very best, award-winning technology that helps RIAs run better businesses and focus on their clients. It also means specialization, delivering scale and efficiency and holding pricing steady, with no intent to charge a custodial fee. With a tradition of disrupting the status quo, a transparent model and an unrelenting focus on clients, we are well-positioned to continue to serve advisors of all sizes.
1 Cerulli | RIA Marketplace 2020
2 Source: The Cerulli Report | U.S. RIA Market Place 2020. RIA Delegation of Investment
The information provided here is for general informational purposes only and should not be considered an offer or solicitation or advice to buy or sell Schwab stock.
Investing involves risk, including loss of principal.