Fee-only RIA firms are growing at a healthy clip

There are many familiar names atop the InvestmentNews 2021 rankings of the largest fee-only advisory firms, but the broader business model continues to welcome newcomers at a rapid clip.

The total number of advisory firms with a fee-only model has risen to 2,663, according to an analysis of the latest data from the Securities and Exchange Commission. That’s up from 2,215 firms in 2019, an increase of 20%.

Fee-only firms analyzed by InvestmentNews have at least $100 million under management and are based in the United States. In addition, fee-only firms primarily serve individuals with investment management and financial advice, they do not employ representatives of a broker-dealer or insurance company, and they do not charge commissions.

Almost all (98%) of these firms charge fees based on a percentage of assets under management but may also charge fixed fees (73% of firms), hourly rates (60%) or performance-based fees (6%).

Not only is the fee-only business model attracting more firms, but the firms themselves are building larger books. While adviser head count lagged firm growth over the past two years, rising 18% to 18,716 advisers, and the median fee-only firm has employed only four advisers since 2019, total assets under management rose 42% to nearly $2.5 trillion over the two-year span. The median firm grew its assets 16% to $294 million.

While broad market performance has helped, fee-only firms have also grown organically. Since 2019, the number of accounts at these firms has risen 31% to more than 3.1 million. Over that time the average account balance has also nudged up from $724,000 to $784,000, an increase of 8%.

Although 2020 data is difficult to compare due to extreme market volatility and delays in regulatory filings, the year without offices may have encouraged advisers to take up the business model and the independence that often comes with it.

According to Echelon Partners, there were 537 RIA breakaways in 2020, down from a peak of 670 in 2019 but higher than any other year for which data were available. And although recruiting activity was slower overall during the year, the RIA channel led in net gains, rising 20% relative to 2019.

Growth in the RIA channel, particularly the strict fee-only model, stands in contrast to the broker-dealer landscape, which is consolidating. According to the latest data from industry self-regulator Financial Industry Regulatory Authority Inc., the number of registered broker-dealer firms dropped to 3,435, down from 4,455 at the start of the decade.

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