With $1.5 Trillion in AUM, RIA Consolidators Are Reshaping the Industry: Cerulli
Consolidators of registered investment advisory firms are reshaping a once fragmented channel, Boston-based consulting firm Cerulli Associates underscored on Wednesday.
Roll-up firms and others who are buying up independent RIAs have grown assets 31% year-over-year and account for $1.5 trillion, or 18%, of the channel’s total assets under management, according to Cerulli. That AUM rivals firms like Raymond James Financial’s Private Client Group, which managed $1.57 trillion at the end of the third quarter.
Meanwhile, RIA consolidators’ share of industry assets has grown by 10 percentage points over the past decade, the research firm said.
“This market opportunity has shifted the dynamics for strategic partners, asset managers, and, most notably, RIAs themselves,” according to the report.
Around 14% of advisors in the RIA channel are affiliated with a consolidator, up six percentage points over the last five years, Cerulli said.
“RIA consolidators have been able to maximize this growth period by building platforms that cater to advisors’ needs while driving the goals of a larger, integrated organization forward,” the Cerulli researchers concluded.
Some of the RIA investors or roll-ups evaluated by Cerulli for the report are: Creative Planning, Hightower Advisors, Focus Financial Partners, Mercer Advisors and Dynasty Financial Partners.
Around 55% of the RIA advisors surveyed as part of Cerulli’s polling of 2,000 advisors said that they were driven to find a larger partner because those consolidators already had all of the technology in place, integrated and available at a cheaper price, the firm said.
“Fundamental to RIAs’ needs, technology tools have become a costly and complex component of advisory practices,” Stephen Caruso, a Cerulli associate director and one of the report’s authors, said in a statement.
Succession concerns also drive many advisors in the RIA channel to pursue consolidator options. “Having a succession plan in place is becoming ever more important as RIAs achieve scale and become more productive,” according to the report, which forecasts that 37% of the RIA channels’ advisors, or 31,000, will retire within 10 years, putting 35% of the channels’ AUM, or $3 trillion, up for grabs.
Unlike brokers at large wealth management firms, RIAs do not have clear succession programs. More than a quarter of advisors surveyed are “unsure” of their plans for retirement. Almost three quarters said that they would consider succession planning or an exit strategy as a factor influencing their decision to join an aggregator.
Industry consolidation is showing up in other ways. Large firms, which Cerulli designates as having more than $5 billion in assets, have experienced the most growth, up by 44 firms year-over-year to 274 at year-end 2023, according to Cerullit. The five-year cumulative average growth rate of those firms is more than 15%, Cerulli said.
As those bigger firms get bigger, the smaller RIAs appear to be losing share. RIAs with under $250 million in client assets have been decreasing in headcount over the past five years, the report said.