Advisers flock to RIAs in the new normal

It’s been two years since Covid-19 shut down the world economy and permanently changed the way all of us live and work. In a special section in the March 21 issue, the InvestmentNews team explores the new challenges, and benefits, that resulted from the pandemic and how the new normal has affected the financial services industry for the long term.

2021 was a very good year for so-called breakaway financial advisers — those who ditch Wall Street wirehouses like Merrill Lynch and Morgan Stanley and flock to registered investment advisers, where they stand to earn a greater share of their revenue and enjoy greater autonomy than they would have working at a big bank.

Wall Street has been pooh-poohing this trend for years, pointing to the fact that the Big Four wirehouses, which also include Wells Fargo Advisors and UBS, have the wealthiest clients and the financial advisers who generate the greatest amount of revenue in the industry.

As the financial advice industry attempts to emerge from two years of Covid-19 and return to the office, the numbers on where advisers are choosing to work show there's little room for doubt that the wirehouses are losing the scrum for talent.

Wall Street firms are pouring money into technology — think Merrill Edge — and acquisitions— see Morgan Stanley's recent purchase of ETrade. But it's the RIAs that are winning the war for experienced financial advisers. And that doesn't seem likely to change any time soon.

According to InvestmentNews Research, the RIA channel saw a net gain of 1,530 financial advisers in 2021, while the wirehouses had a net loss of 2,065. Of course, not all wirehouse advisers jump to an RIA; some retire and hand off their book of clients to the firm, often for a handsome fee. The RIA channel also boosts its numbers by scooping up advisers from independent broker-dealers and regional firms, although the target for many RIAs is the wirehouse advisers with the biggest production.

RIAs also have the wind at their backs in the fight for financial adviser talent. Last year's RIA net gain was 69.4% more than in 2016, when RIAs had a net gain of 903 advisers, according to InvestmentNews Research.

And the RIA industry is beginning to look a lot like — gasp! — Wall Street, making it even more attractive — and familiar — to financial advisers leaving the big firms. For instance, private equity money has flooded the RIA industry, increasing the potential valuation of an RIA with $1 billion or more in assets under management.

The public markets are another reason why RIAs are winning the affection of financial advisers.

Dynasty Financial Partners, an early proponent and gateway tool of the breakaway partner model, filed for an IPO in January, reporting 47% year-over-year growth in fee-based revenue through September, according to a filing with the Securities and Exchange Commission. It’s seeking to raise $100 million.

Also in September, two RIAs and a special purpose acquisition company said they were combining to create a new company that will be listed on the Nasdaq, Alvarium Tiedemann Holdings, that has aggressive growth targets for assets and earnings. The new enterprise expects to have a public value of almost $1.4 billion.

More such listings and deals will come in the near future in the RIA industry. It's the hot space in the wider financial advice industry. And that's the new normal for RIAs.

More articles from the special section:

Messaging apps take on Wall Street

Retiring in an age of uncertainty

Brokerages want remote office inspections to be part of new normal