It might be too soon to say that the big coastal cities are losing their mojo, but from a financial planning perspective the latest momentum favors some of the sleepier areas of the Midwest.
An
InvestmentNews analysis of SEC-registered RIAs shows a 29.2% year-over-year growth in assets under management for Midwest-based registered investment advisers.
That's nearly double the 15.9% growth rate of the Northeast region and almost triple the 10.1% growth rate of the Southern region. AUM of RIAs in the Western region grew by 21.9% over the past year.
(More:
InvestmentNews RIA Data Center)
The research and regional segmenting of RIAs in the
InvestmentNews analysis was based on data reported on Form ADVs to the Securities and Exchange Commission as of Nov. 1. Screening out asset management companies and firms with broker-dealer relationships, among the criteria to identify pure advisory firms,
InvestmentNews qualified 2,141 U.S.-based RIAs for the regional analysis.
In terms of total assets by region, the Northeast is largest at $418.1 billion, followed by the West at $394.8 billion, the South at $315.7 billion, and Midwest at $291.6 billion.
Source for all charts: InvestmentNews Data
Theories for what's driving the Midwest growth spurt abound, ranging from the demographic realities of a fast-retiring generation of blue-collar workers to regional population migrations to the gentle lure of Midwestern folksiness.
The most likely answer is all the above, and it doesn't hurt that the stock market has contributed a third or more of the asset growth at many firms.
Even though many of the larger Midwest-based RIAs could technically be defined as national firms, the research underscores the truly independent nature of RIAs and how even as consolidation hits record levels, it is still a largely fragmented industry that thrives on local brands.
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"People in the Midwest are savers because they are taught early on to save, and they do," said David Barton, vice chairman of Mercer Advisors, on why the Denver-based firm has started buying Midwest-based RIAs.
Mercer, which has 35 offices across the country,
last month acquired Traverse City, Mich.,-based FIM Group, a $600 million RIA with offices in Michigan and Wisconsin.
Mr. Barton said the FIM acquisition, Mercer's third of four deals during the month of November, is designed to expand Mercer's existing Midwest footprints in Chicago, Detroit and Columbus, Ohio.
Partnering with local firms
"The Midwest is a sought-after market, but it's not a Johnny-come-lately market, so you can't just plant a flag and say, 'I'm here,'" he said. "The Midwest is a local market, and you need to partner with local, established firms."
Bill Koehler, president and CEO of FCI Advisors in Overland Park, Kan., is the definition of a local, established Midwestern RIA, and the business model is likely among the reasons firms like Mercer are taking notice.
FCI was founded 52 years ago and has grown to $8.3 billion under management by almost exclusively serving clients in the Midwestern region.
"We just kind of plow the ground, and we've got relationships that go back a half a century," said Mr. Koehler, who is only the firm's third CEO.
In addition to the headquarters in Overland Park, which is one of the most affluent suburbs in the U.S., FCI has a second office in Kansas City, Mo., to help serve its more than 2,500 clients.
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While FCI's asset-based fees start at 1%, with breakpoints starting at $1 million, people aren't turned away for not being rich.
"Our clients go across the spectrum," Mr. Koehler said. "We have ultra-high-net-worth clients, but we also don't really have a minimum investment because some of the small clients can turn into big clients."
Asset growth at Midwestern firms is at least partially attributable to the continued trend of regional migrations, as job flexibility and quality-of-life preferences funnel more people away from the more expensive coastal cities toward the Midwest.
"There are plenty of proof points about why you don't have to be located in a traditional large money center anymore," said David Canter, head of the RIA segment at Fidelity Clearing & Custody Solutions.
Migration to smaller cities
The latest data from the U.S. Census Bureau shows a steady migration away from metropolitan areas with more than 1 million people toward metro areas with between 500,000 and 1 million.
Every year from 2012 through 2017, the Census Bureau recorded a decline in net migration into the 53 largest metro areas, while recording increased net migration into 54 mid-sized metro areas.
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General population growth still helped big cities like New York and Los Angeles grow by 0.23% and 0.19% last year, respectively.
But real growth is seen in places like Minneapolis-St. Paul, which grew by 1.22%; Kansas City, Mo. (1.07%); Columbus, Ohio (1.55%); Indianapolis (1.15%); and Des Moines, Iowa (1.76%).
"That strong growth [in the Midwest] is consistent with what we've seen across our service and support teams," said George Tamer, managing director of strategic relationships at TD Ameritrade Institutional. "Some of the fastest growing RIAs we serve are in the Midwest."
Anecdotally, Mr. Tamer cited a couple of trends that could be driving growth in the region.
"We've seen quite a few independent broker-dealer reps coming out of the Midwest to start or join existing RIAs," he said. "You also see some insurers in the region expanding into wealth management by establishing RIAs to manage assets for high-net-worth clients."
A common theme among a lot of Midwest-based firms is a heavy reliance on referrals for growth.
Consider, for example, Moneta, an $18.5 billion RIA established 29 years ago in a suburb of St. Louis. To this day 70% of the clients are from the St. Louis area.
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"We've grown by hiring talented younger advisers who have grown sustainable businesses, and we've grown organically through the development of our talent," said Eric Kittner, Moneta's chairman and managing partner.
Paul Sunderland, founder of Financial & Investment Management, which is being acquired by Mercer Advisors, attributes some of the recent Midwestern momentum to an economic recovery that has finally reached the middle of the country.
But he also cites the impact of aging baby boomers who are in or close to retirement and are starting to realize they need some financial guidance.
"There's an attitude of independence in the Midwest where people don't always want to seek help, but people are starting to embrace financial planning as normal," he said.
Second set of eyes
Michael Palazzolo, owner and president of Fintentional, a fee-based advisory firm in Birmingham, Mich., sees a similar phenomenon driving more do-it-yourselfers toward professional advice as retirement nears and the portfolios swell.
"I think people in the Midwest have a very pragmatic view of their finances and could probably take care of things on their own, but at some point, they realize they could use a second set of eyes to guide them, confirm or point out any errors in their thinking," he said.
Mr. Palazzolo, who left a career as an engineer 11 years ago to become a financial adviser, reflects on the popularity of financial planning in the Midwest — like a lot of Midwesterners — by politely looking askance at the country's higher-profile coastal cities.
"Sometimes on the coasts, people are looking for white-glove, wining-and-dining service," he said. "But I've heard that, even from people on the coasts, they prefer to work with Midwest firms because we're a little more down to earth."
