Indie Broker-Dealers Threatened As Much as Wirehouses by RIA Migration: Cerulli

While registered investment advisory firms have been growing largely at the expense of wirehouse firms over the past decade, Independent broker-dealers are facing their own challenge with breakaway brokers, according to Boston-based consulting firm Cerulli Associates. 

Nearly one third of advisors at independent broker-dealers have considered opening their own registered investment advisory firm in the past year, according to a Cerulli study released on Tuesday. Those advisors are drawn to the independent RIA segment by potentially higher payouts and the opportunity for more control and to build equity, according to the report, which also noted that the share of assets controlled by RIAs has grown by 7.2 percentage points over the last decade. 

Cerulli did not identify specific firms but independent broker-dealers such as Commonwealth Financial, Raymond James Financial and LPL Financial have been building out their own RIA custody channels in recent years in part to retain those who would otherwise take assets elsewhere.

Nearly 36% of those independent brokers considering leaving said that they may retain their affiliation with their current independent broker-dealer after starting their own RIA, according to the Cerulli report. 

“The numbers will be impacted in terms of advisor count by how many go to RIA,” Raymond James CEO Paul Reilly said on the company’s earnings call last week. “Hopefully the ones that do will choose to stay with us. And we’ve had a pretty good record on it so far.”

Raymond James executives have said its custody channel, RIA Custody & Services, is growing faster than its employee and independent broker-dealers, particularly as private equity investments are driving more interest. Raymond James had $161 billion in assets in the RIA channel as of March 31, up almost 30% from one year ago, the company reported last week. 

To be sure, the RIA move isn’t for everyone, Cerulli said. Many brokers remain content to stay in their seats and forgo the additional operational responsibility of running an RIA, the Cerulli report said.  

“Departing an employee [broker-dealer] is a daunting task for advisors who have spent their careers with this type of affiliation,” Andrew Blake, associate director at Cerulli, said in a statement. “Added accountability and the unfamiliar economics leave many new RIAs feeling spread too thin and unable to grow their practice as they had expected.”