The past two years have brought on a number of changes for financial advisors and their clients. Covid-related shutdowns, more readily available consumer information, and the financial uncertainty associated with Covid’s impacts on the economy, have all combined to usher in a new era of financial advising, in which advisors and their clients are both negotiating a rapidly changing landscape of technology, information, and advisor and client mobility.
So what’s next? What is the next great opportunity for financial advisors, and how can advisors be best positioned to take full advantage of every opportunity in the year to come?
RIA Growth, Driven By Advisor Independence, Will Continue At A Robust Pace
RIAs have been driving the financial advisor market over the past few years, and have outpaced traditional wirehouse trading firms in growth and reach.
Let’s start by explaining what an RIA is, and what it isn’t. An RIA, or registered independent advisor, is a term that was first defined in the Investment Advisers Act of 1940. An RIA as a “person or firm that, for compensation, is engaged in the act of providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications.”
The Investment Advisers Act of 1940 defines who is and who is not an advisor by analyzing three criteria: the type of advice being offered, the advisor’s compensation structure, and how much of an advisor’s income is generated by providing investment advice. How the individual advertises their services is also relevant — if you hold yourself out as a financial advisor, you’re likely to be covered by the rules of the Act.
RIAs Are Fiduciaries
Registered investment advisors are bound to a fiduciary standard that was established as part of the Investment Advisers Act of 1940 and can be regulated either by the SEC or state securities regulators, depending on the scale and scope of their business activities. The Act defines a fiduciary as one who owes a duty of loyalty and duty of care, which means that the advisor must put their client’s interests before their own financial gain.
For example, the advisor cannot buy securities before buying them for a client (a practice known as front-running) and is not permitted to purchase securities based on commission considerations (known as churning). Advisors must also ensure that they exercise due diligence in evaluating securities, and are required to ensure that their analysis is thorough and as accurate as it can be
Additionally, the advisor needs to place trades under a “best execution” standard. This standard requires that advisors execute trades using the most low-cost and efficient available means to do so.
RIA Growth Is Robust And Continuing To Accelerate
According to the 2021 Schwab Advisor Services Independent Advisor Outlook Survey, conducted in June of 2021, RIA growth is poised for continued expansion. According to institutional investor publication RIA Intel,
Nearly half of RIAs (47%) say the industry has not fully matured and that it will continue to grow at a higher rate than the market, according to the Schwab Advisor Services Independent Advisor Outlook Study. Only 33% said the same in August of 2020.
Forty-eight percent of RIAs said the industry will grow at a slow and steady rate. Just 4% said the industry has hit its peak growth and will now stabilize and remain flat (other than market-based fluctuations in assets) and 1% say the industry is on the decline.
Much of this growth is driven by advisor preference, with advisors who were forced to work more independently during the pandemic finding that they enjoyed developing new tools, workflows, and working routines. Advances in technology have made it easier than ever for advisors to acquire clients and provide all of the services that a wirehouse might provide, all without leaving home. 24% of advisors surveyed by Schwab cited advances in technology as a driving factor in the growth of independent firms.
However, RIA growth is not just driven by advisor preferences. Clients are becoming more aware of the benefits of dealing with RIAs, including fee-only compensation structures, fiduciary rules that favor investors, and the personal consideration that comes with dealing with an independent advisor. More savvy investors, with access to more robust research and investment tools, are more likely to view an advisor as a partner, and want advisors who are willing to provide comprehensive, detailed advice. Independent advisors are uniquely positioned to meet this challenge and to avoid a cookie-cutter approach to investing that doesn’t always serve a client’s specific needs and goals.
Want to Keep the Conversation Going?
Going independent is more complicated than ever, and the right partner can make all the difference. At Terrana Group, our experienced and knowledgeable professionals welcome the opportunity to consult with you to determine the right platform for you going forward — one that satisfies your long term objectives and is also best for your clients!
Over the course of nearly 30 years, we have helped facilitate thousands of professional placements for Advisors, with client assets transferred exceeding $67 billion dollars. We have completed placements in most every major city throughout the United States, while building deep relationships with the advisory world’s most sophisticated and notable firms — including Wall Street brokerages as well as most Regionals, Boutiques, Banks, Independent Broker Dealers, and RIAs. We have a broad knowledge of the deals that are currently being offered and will ensure that you are being presented with the offer which will be best for you.
Confidentiality, professionalism, and respect are protocol to our practices and beliefs; we handle each and every step of the placement process with complete communication, keeping you informed while making the process smoother from beginning to end.
We are proud to always be considered as a great asset by our clients because of our proven expertise, many years of knowledge, and acute attention to detail. Financial Advisor Recruiting Services are not all created equal; we guarantee that the TG experience for clients and candidates is always world class.
We are based in Chicago, with a nationwide reach. Let us know you are interested by contacting us today. To get the conversation started, email info@terranagroup.com or give us a call at 312.655.8380 today.
