Envestnet’s fourth RIA Forum on September 14, 2023, addressed key trends facing Registered Investment Advisors (RIAs) and explored strategies to help them strengthen and grow their practices. Hundreds of RIAs from around the country attended our virtual event, engaging with our panel of Envestnet experts to gain insights into the challenges faced by wealth managers in the current landscape.
I was joined at our webinar by two Envestnet panelists: Chris Shutler, Head of Strategic Development and Market Intelligence, and Brooks Friederich, Head of Investment Solutions and Strategy. Here’s a recap of the four trends we explored in our conversation:
1. A strong M&A market for RIAs
Chris focused on the pace of consolidation in the RIA industry and the fact that it is moving more quickly than ever before. According to Cerulli’s latest RIA research, since 2016, the average AUM of RIA firms has more than doubled, increasing from $230 million to nearly $500 million. Additionally, the number of firms with over $1 billion in AUM has more than doubled, as has the number of firms with over $500 billion in AUM.1
Chris highlighted the fact that in 2023, he saw 140 deals through June 30, similar to 2022, with slightly larger average deal sizes. Despite higher interest rates, our industry remains stable and the valuations are holding up. Regarding demand, private equity is very active, with 70% of the deals involving a PE firm or PE-sponsored acquirer in 2022. On the supply side, Cerulli’s research shows that in the next decade, over 106,000 RIAs will retire, and their assets will need to transition.1
If you’re an advisor who is not interested in selling, it’s important to recognize that this activity is fundamentally reshaping the industry and altering competition dynamics. The wealth management business has seen a substantial increase in capital, and the RIA channel is growing faster than every other channel, expected to surpass wirehouses in 2025.1
Chris concluded by discussing the reasons behind consolidation, such as succession planning and the desire for more holistic advice, and how scale is reshaping the ecosystem and influencing client expectations.
2. New entrants to the industry
There’s a lot of interest in the RIA space, with many outside players seriously considering entering. Chris discussed these new entrants, including digital advice and robo-advisors, with robos having grown from 0% to 2% of assets in seven years by the end of 2022.1
He also talked about other new entrants aiming to provide more specialized services to clients, like custody firms with a tech-first mindset and companies that help advisors find clients. This category will continue evolving to support the growth of advisory practices. Finally, Chris touched on the application of artificial intelligence in wealth management.
While we believe in the power of the human advisor, it’s crucial to recognize how technology and new players are changing the way advice is delivered, empowering advisors to do things differently. Although there is no perfect solution yet, Envestnet is actively addressing these changes by providing solutions such as our Insights Engine to help advisors grow and build more efficient practices. Chris also referenced Envestnet’s work on developing a fully digital and real-time front-to-back platform experience.
3. More fee compression
Brooks joined the discussion to talk about how Envestnet sees fee compression playing in the industry. In the asset management space, asset managers are becoming larger and they want to have the ability to manage their products across different product wrappers, like separately managed accounts, mutual funds, CITs, ETFs, and model portfolios. They also want to scale their asset management business across multiple asset classes.
When discussing fee compression in the asset management community, Brooks highlighted a significant fee reduction in mutual funds and ETFs over the past two decades. This reduction amounted to nearly 40% for both active mutual fund expenses and fees.2
On the other hand, advisor fees have increased gradually over the past five years, primarily due to advisors expanding their services. Brooks sees more advisors evolving into holistic wealth managers, offering financial planning, embracing technology, and providing comprehensive client service, which justifies the increase in fees.
4. Changing client expectations
Advisors are under pressure to expand their services and need to do so in an efficient, scalable, and profitable way. Consumer tastes and preferences have changed, including targeted advertising and apparel curated to tastes, as examples. Investors now expect changes in how wealth management is delivered.
Chris pointed out that operating profit margins in the RIA industry are currently at 29-30%, in part because of market strength and asset growth.3 He also mentioned that affluent investors want more than just investments and highlighted a gap between the disparity of services that affluent investors want and those they are receiving from their advisor. Chris emphasized that consumers want advisors who can provide comprehensive services from a single institution, enabling them to consolidate their financial activities.
How RIAs can stay competitive
As I wrapped up, I shared some final ideas to help RIAs remain competitive:
- Strengthen the link between financial planning and execution. Clients expect you to be able to connect all the dots from the plan through the execution and the ultimate results. The more clearly and explicitly the RIA can tell that story, the better.
- Provide personalization to demonstrate how you can address clients’ unique needs and circumstances. If the client can’t see how their specific needs are reflected in the plan, there is a potential problem. Thanks to technology, personalization is no longer theoretical. RIAs need to use the tools at their disposal to ensure each client’s financial plan fits their specific needs.
- Broaden your service and advice offering to provide a more holistic approach that aligns with your clients’ needs and preferences. This is more easily done than ever before, and frankly, it is something that many clients expect. Consider offering retirement planning, tax planning, estate planning, insurance products, trust services, intergenerational wealth planning, and healthcare planning support.
If you missed our RIA Forum and you’d like to hear our full conversation, “Trends Shaping the RIA Space and How to Leverage Them,” watch the replay here. We also invite you to reach out to us at RIASales@envestnet.com.
The information, analysis and opinions expressed herein are for informational purposes only and do not necessarily reflect the views of Envestnet. These views reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.
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1 Cerulli U.S. RIA Marketplace, 2022
2 ICI Statistical Report Builder, 2022
3 Spectrem Group, “Wealth Management Redefined”; and EY Global Wealth Research Report, 2021
