Wealth managers are being added at a high rate; California is king
Brooke’s Note: The good news about RIAs is also the bad news. There are some 29,000 of these firms strewn across the United States. Each one is a snowflake of sorts, representing different business models that may or may not include wealth management. Even within the wealth management segment of about 13,000 firms, each firm represents a different mix of clientele. This is good because it is a perfect example of how a single industry — the RIA business — is meeting the infinitely differentiated needs of a consumer base. The bad news is that it is difficult to keep track of all these practices in any orderly or precise fashion. One company, RIA Database, has created a thriving business largely just by undergoing this dizzying task. I’ve been pestering its owner, Julie Cooling, to give me a download of RIA data that I could share with our readers as a sort of magnetic resonance imaging of the business. Here is some of the rich trove she provided along with a few caveats about where art and science collide in giving precise figures. RIA Database starts with SEC and state registration data of advisory-related companies and then divines from government documents precisely which firms fit in what bucket using screens and filters that it tweaks from time to time.
1.) There are a total of 29,000 RIA firms with $34 trillion of assets, says RIA Database. This amount includes virtually every company in the investment industry including banks, broker-dealers, mutual funds, investment managers, big consulting firm (like Mercer) and hedge funds. There are about 13,000 with AUM of $1.7 trillion that can be considered wealth managers – firms doing planning and investing on behalf of high net worth and mass affluent clients. In eliminating 16,000 RIAs, Cooling also filters out assets and firms that rely on commissions and primarily affiliate with broker-dealers.
2.) There were 271 firms that registered with the SEC as RIAs in February, on the heels of 146, 133, 144 and 174 that registered in January, December, November and October respectively. In most months, fewer than 50% of the new RIAs were wealth managers. In February, 95 of the total 271 were wealth managers; in January there were 50 new wealth management firms; in December 57, and in November 53. These amounts are quite similar to the previous year’s registration totals. For example, there were 278 and 212 total registrations for January and February of 2010 and 64 and 121 wealth managers included in those amounts respectively. The total registrations in the past two years are on a higher trajectory than in prior years, says Julie Cooling, principal of Charlotte, N.C.-based RIA Database.
In 2009, we were seeing, on average, 120-150 RIAs (all kinds) new per month and 160-280 per month in 2010. We’re seeing 100-plus drop off, suspended, canceled or terminated per month as well.
A good barometer for this growth in the RIA world is Shareholders Service Group Inc.. The San Diego-based asset custodian brings aboard an RIA a day and nearly 50% of them become RIA wealth managers immediately prior to joining — either by converting from registered rep status at a wirehouse of IBD or registering de novo with the SEC or state. See: The emerging asset custodians rake in small RIAs.
3.) The aggregate number of firms — 29,000 – has stayed roughly static for years with some years as high as 33,000 and others lower, Cooling says. While new ones form, old ones get dissolved upon merger or just close up shop. Of the RIAs that RIA Database tracked in 2006, 10,000 are gone, she adds.
The 13,000 RIAs that are wealth managers are dominated by micro practices as of Feb. 28. There were 5,300 firms with fewer than $5 million in assets, 1,150 firms with $5 million to $10 million of assets and 2,000 firms with $10 million to $25 million in assets. In all, there are 8,450 RIA practices out of 13,000 that are pretty tiny by any standard! In the $50 million to $100 million range there are 1,150 practices, 1,250 practices in the $100 to $300 million range. There are 350, 300 and 300 firms respectively in the $300 million to $500 million range, $500 million to $1 billion range and the $1 billion-plus categories respectively.
The preponderance of small RIAs – and the growing numbers of new RIAs — may explain why companies specializing in servicing them report such big amounts of new custodial accounts. Scottrade Advisor Services, Trade-PMR and Shareholders Service Group each report hauling in on average of an advisor per day to their platforms.
“From our perspective, interest in the RIA channel continues to gain steam,” said Frederick Van Den Abbeel, executive vice-president / RIA Services for Trade-PMR, Inc. in an email. ... Due to expanded regulatory pressure, more and more B/D firms are forming their own RIA and with goals of eventually collapsing the B/D completely.”
Van Den Abbeel adds that approximately 95% of the leads that initially contemplate becoming a hybrid advisor at the end of the day opt to going straight RIA Independent. He cited three reasons:
• The availability of expanded product offerings available to the RIA lowering the necessity for an advisor to keep a B/D relationship .
• Managing multiple regulatory agencies and the constant flux in terms of B/D’s ever changing house rules/policies.
• The freedom to pursue a marketing strategy free of tight compliance restraints.
4.) RIAs that serve as wealth managers are concentrated in five states. California is the land of plenty: $351 billion of RIA assets followed by New York with $191 billion, Massachusetts with $176 billion, Texas with $98 billion and Illinois with $81 billion. Florida’s RIAs have $46 billion of AUM. “People think Florida is bigger than it is because of the avalanche of rich Baby Boomers who retire there,” Cooling says. This could be related to the strength of banks and trust companies in the market of these affluent snowbirds. Not surprisingly, the numbers of RIA practices tend to be higher in those states: 1,957 in California, 626 in Massachusetts, 842 in New York, 910 in Texas, 587 in Illinois and 754 in Florida, according to RIA Database.
5.) The states that grew fastest in wealth manager assets in 2010 were California, New York, Missouri, Ohio, Illinois and Virginia with $42 billion, $33 billion, $17 billion, $16.5 billion and $13.5 billion of new assets respectively. There was one anomaly in the data. Massachusetts lost $37 billion of assets, for which RIA Database does not have an explanation. See: Which metro areas are the most fertile ground for advisors?
6.) RIAs have returned to growth. Looking at RIAs in aggregate, including mutual funds, hedge funds, trust companies brokerages and the like, RIAs with less than $25 million, $25 million to $50 million and $50 to $100 million had growth of 101%, 21.8% and 26.7% growth from the beginning to the end of 2010. This compares to growth of 17%, 15% and negative 4% for firms with $100 million to $1 billion, $1 to $5 billion and $5 billion plus in assets respectively. No doubt the $5 billion-plus category was dominated by big funds and the smaller categories by wealth managers.