Mega-RIAs still winning out amid advisor growth surge: Cerulli

Even as the pace of advisor growth doubled, challenges continued for the overwhelming majority of smaller firms.

Even while confronting their fair share of market headwinds in 2022, registered investment advisors experienced a burst of growth as new players entered the scene and existing participants continued to welcome new recruits, according to Cerulli.

In its latest research on the RIA market, Cerulli Associates revealed that total assets in the RIA channel dipped by 13% over the course of 2022 as the carnage in the broader financial markets filtered through to investor portfolios.

Nevertheless, the pace of growth in the number of advisors accelerated substantially, to clock in at 8.6 percent, nearly doubling the annualized rate of 4.4 percent over the previous 10 years. That momentum, according to the report, came as new RIAs broke into the industry and breakaway advisor teams continued to join the large incumbents.

According to Cerulli, the number of retail-focused RIAs expanded by more than 11 percent in 2022, which included a large amount of new independent RIAs (12.3 percent).

The firm’s 2023 RIA research also revealed a pattern of continued fragmentation and imbalance in the sector.

An overwhelming 93-percent majority of all RIAs reportedly had less than $1 billion in AUM, Cerulli said, while those that have broken past the billion-dollar AUM mark managed 71 percent of all RIA assets and employed nearly half of all advisors (47 percent).

“2022 continued to highlight the obstacles that many smaller firms face due to not having the resources or capacity to differentiate and foster inorganic growth in a challenging market,” said Stephen Caruso, senior analyst at Cerulli.

The growth in assets and market share is expected to continue accruing mostly among billion dollar-plus RIAs, Caruso said, as breakaway teams leave employee-based models for large incumbent RIAs that promise more autonomy.

Cerulli’s research suggests future growth in the market will continue to be supported by backing from private equity firms.

Industry consolidators, it predicted, will continue to seize on opportunities to acquire growth-challenged firms whose processes, talent base, and client profile align with theirs.

However, Cerulli expects to see a moderation in annual growth within the RIA space as the pent-up pipeline from the Covid-19 pandemic normalizes.