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The independent investment advisers that represent the clearest alternatives to big brokerages in the US have long had a reputation for being small and idiosyncratic. The leading registered investment advisers (RIAs), however, look more like large companies angling for an edge in a maturing business, Financial Times research shows.
The growth of the large RIAs is visible in this fifth annual FT 300 Top Registered Investment Advisers list. The median FT 300 company manages $1.7bn in assets — compared with $1.2bn in last year’s list. RIAs with more than $1bn in assets under management (AUM) also increased, from 57 per cent of 2017’s crop to 74 per cent this year.
The median FT 300 company has 13 employees involved in providing investment advice, from working with clients to researching funds — up from 11 in last year’s list.
Robust financial market gains last year, including a nearly 22 per cent total return on the S&P 500, is one reason this year’s group enjoyed an average 30 per cent increase in AUM in 2017.
The markets have been choppier in 2018, which is fine with many elite RIAs; most of the FT 300 companies focus less on emphasising their investing acumen and instead stress their value in helping investors craft a financial plan and stick to it.
One example is JOYN, based in Atlanta, which offers what it calls “behavioural wealth management” that aims to address investors’ stress responses to markets and decision-making.
AdvicePeriod of Los Angeles focuses on planning services — managing cash flow, planning for retirement, creating estate plans and more — while it outsources most investment decisions.
All the elite RIAs in the FT 300 are striving to differentiate themselves. Some 40 per cent stress their expertise in helping retirees, for example, while 23 per cent specialise in helping entrepreneurs, and 17 per cent specialise in trusts and estates. Some RIA companies are large enough to emphasise all three specialities.
Consolidation is making some of the big advisers even larger. Following a record 152 mergers in 2017, this year began with a record 47 deals among RIAs in the first quarter (compared with 46 in Q1 2017), according to DeVoe & Co, a provider of consulting and banking services to advisers.
Focus Financial Partners, which has acquired large stakes in more than 50 practices around the US since it was founded in 2006, has 14 portfolio companies in the list — double the number of affiliates it had in last year’s FT 300.
Focus recently filed to be the first RIA consolidator to go public, a development that could kindle even more interest in the RIA market.
One of the year’s biggest mergers was announced in April, uniting two of the largest RIAs in the FT 300: Financial Engines — considered one of the first “robo-advisers” because it uses automated investing techniques — and the more traditional Edelman Financial Services, which has more than 40 offices around the US.
The “robo” investing model has proved popular enough that two other robo-advisers made the FT 300, Betterment and Personal Capital.
The FT 300 list reflects the intense competition between advisers. Many companies made the list by edging out peers on only minor differences.
The final list includes advisers from 38 states and Washington DC. Traditional RIAs’ growing use of technology, such as software to manage investment portfolios and create financial plans, means regional and national practices can flourish far from Wall Street.
Many companies made the list by edging out peers on only minor differences
This year marks the first time that Atlanta was home to the most FT 300 advisers, with 14. New York was second, with 12.
RIAs might be battling between each other, but they are all benefiting from the investment industry’s gradual embrace of the “fiduciary” standard.
That standard, an obligation for RIAs, requires putting investors’ interests first — rather than the less onerous obligation on brokers to recommend merely “suitable” investments.
In 2017, the US Department of Labor (DOL) proposed a similar fiduciary standard for broker-dealers, sparking a public debate over the benchmarks used to ascertain quality in the adviser market.
Although a US Court of Appeals struck down the DOL rule in March this year, advisers’ initial preparations ahead of implementation of the rule and the spotlight it shone on quality accelerated the marketplace’s adoption of the fiduciary approach.
However, the battle on standards continues; in April, the Securities and Exchange Commission (SEC) proposed a rule that would require all advisers, including brokers, to work in the “best interests” of investors. No one can predict what any final SEC rule will look like or when it might take effect, so in the meantime RIAs differentiate themselves in part by publicising their higher standard of care and commitment to put investors first.
Indeed, the FT 300 companies, on average, estimate that they manage 94 per cent of client assets to a fiduciary standard.