The RIA Channel: A Roadmap for Driving Growth

The RIA Channel
A Roadmap for Driving Growth

© 2014 Broadridge Financial Solutions
THE RIA CHANNEL – A ROADMAP FOR DRIVING GROWTH
Executive Summary
ETF and mutual fund providers should review their distribution strategies in light of the rapid
growth in the sales of these products by registered investment advisors (RIAs). According to
insights from Access Data, a Broadridge company, RIAs now sell more, in aggregate, than the
top four wirehouses. Unfortunately for fund sales and marketing executives, RIAs tend to be
small and more diverse, unlike those institutions, and therefore harder to reach using traditional
distribution strategies. Gaining access and winning business in this space requires advanced
segmentation and specific targeting of the individual advisor.
Drivers of growth
• The RIA channel grew slightly faster than the wirehouses in absolute terms in 2012 and
2013, with total assets increasing by $328 billion, versus a $322 billion increase in the
wirehouse channel.
• Over the same period, the RIA channel has grown more evenly between long-term mutual
funds, which represent 59% of new assets, and ETFs, which represent 41% of new assets.
The wirehouse channel, on the other hand, saw most of its increased assets from long-term
mutual funds, which represent 73% of new assets.
Segmenting the market
To develop a cost-effective distribution plan, ETF and mutual fund executives should first segment
the RIA channel in the following manner:
• Identify attractive RIA segments (e.g., those with largest asset base)
• Confirm that these segments offer the biggest opportunities (e.g., in terms of sales of
relevant product types). For example, RIAs with $100 million to $1 billion in assets under
management have the biggest aggregate asset base of all the segments, and use ETFs and
mutual funds actively
• Profile the segments to understand the composition of each segment’s client base,
geographic spread and investment philosophy
• Leverage robust segmentation to develop the next step of their sales and marketing
activities, as well as product positioning and future development
Building the action plan
Providers should then develop a distribution plan that answers the three following questions:
• Access: How will RIAs access your products and find information about them?
• Analysis: How can you understand channel and segment preferences and behavior?
• Alignment: How can you best align sales and marketing resources with the RIA channel?
These considerations will be increasingly important to funds in coming years as the RIA sales
channel continues to outpace the wirehouse sales channel’s rate of growth.

Page 3 © 2014 Broadridge Financial Solutions
Total sales of mutual funds and exchange-traded funds (ETFs) by fee-based independent advisers
now exceed the total sales made by the four largest traditional distributors—the big wirehouse
broker dealers. In this report, we explore a key contributor to this market dynamic: the registered
investment adviser (RIA) sales channel.
While RIA sales of mutual funds and ETFs have increased rapidly in the past few years,
manufacturers of investment products find the channel more difficult to work with than
wirehouse firms. RIAs are numerous and diverse—ranging from single-person operations to
companies with large teams—and as fee-driven businesses with discretion to select investments,
they have many distinct characteristics.
Below we offer insight into:
• RIA channel growth and trends
• Segmenting the RIA channel by size of assets managed
• Products and services driving growth in the RIA channel
Report Highlights
Channel growth: RIA mutual fund and ETF assets reached $1.62 trillion by the end of 2013,
surpassing the total fund and ETF assets held with the top four wirehouse firms: pages 3 -4
Segmentation: Medium-size RIAs ($100 million – $I billion in assets) represent the best
prospect for mutual funds and ETF providers: pages 4 - 5
Channel characteristics: Product trends within the RIA channel: page 9
New data: RIA geographic dispersal by region across the United States: page 11
RIA channel growth and product trends – the latest data
RIAs are now selling more mutual funds and more ETFs than the top four wirehouse firms
combined (Figure 1). RIA assets of mutual funds and ETFs totaled $1.62 trillion at the end of 2013,
surpassing the total gathered by Bank of America Merrill Lynch, Wells Fargo, Morgan Stanley
and UBS.
The RIA Channel: A Roadmap for Driving Growth

RIA Channel Assets
• ETF Assets with RIA Channel Now Greater
than Wirehouse
• LTMF Assets with RIAs Slightly Behind
Wirehouse Firms
• Combined Assets for RIAs is Slightly Higher
than Wirehouse
• RIA Assets Up $68B in Q1‘14
Wirehouse Channel Assets
• LTMF Assets Continues as Dominate Product
with Wirehouse Firms
• Combined Assets for Wirehouse Has Now
Dropped Behind RIA Channels
• Wirehouse Assets Up by $38B in Q1‘14
The numbers over the last two years show key differences between the two channels. During
2012 and 2013, the RIA channel grew slightly faster than the wirehouses in absolute terms, with
total assets increasing by $328 billion, slightly ahead of wirehouse growth of $322 billion. (This
pattern continued in the first quarter of 2014; assets for the RIA channel increased by $68 billion,
versus a increase of $38 billion for the wirehouse channel.) While the growth rates of both
channels are roughly similar—around 25% over the two-year period—the drivers of growth are
markedly different. A key driver of growth in the RIA channel has been a strong rise in ETF sales.
Over that two-year period, ETF assets rose 62% and fund assets rose 18%, compared to a rise in
ETF and fund assets at the wirehouses of 40% and 22%, respectively.
RIAs are now the biggest channel for ETF asset sales among the three retail distribution outlets,
with some $352 billion in assets. Portfolio models are an important driver of this growth.
Windhaven, an investment manager specializing in model portfolios that exclusively uses ETFs to
manage money, had a 59% increase in the ETF assets it managed in 2013, compared with overall
ETF growth of 33% for the RIA market during 2013, and 28% across all distribution channels.1
Figure 1: RIA Versus Wirehouse Channels
1 Access Data internal analysis
Source: Access Data, a Broadridge Company Source: Access Data, a Broadridge Company
RIA Distribution Channel Assets
AUM End of AUM End of2011 20112013 20132012 2012
$217
$1081
$1298
$264
$1126
$1390
$1274
$1626
RIA - ETFs RIA - LTMF RIA - Combined
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Wirehouse Distribution Channel Assets
$220
$1054
$1274
$245
$1125
$1370
$307
$1289
$1596
Wirehouse - ETFs Wirehouse - ETFs Wirehouse - Combined
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
$352

Even though passive products such as ETFs and index mutual funds are more widely used by
RIAs than by wirehouses, actively managed mutual funds made up 73% of RIAs’ total holdings of
mutual funds and ETFs at the end of 2013.2
Figure 2 shows the variability of the predominance of
actively managed funds across different asset types, e.g., representing 59% of US equity assets
and 76% of international/global equity funds.
While ETFs are widely used by RIAs, the channel is a major consumer of mutual funds, with over
$30 billion of net inflows to long-term mutual funds in 2013. RIAs show a tendency to use actively
managed mutual funds where active management offers real benefits. Examples of funds in this
category are international/global funds (76% actively managed), balanced/allocation funds (99%
actively managed) and municipal bond funds (100% actively managed).
Segmenting the RIA channel by size of operation
The nature of RIAs makes it impossible to build a “one size fits all” sales approach to the channel.
While the four main wirehouses offer central points of contact and provide a degree of product
and process uniformity for their approximately 57,000 advisers, a number of RIAs just shy of that
number are spread among 14,000 RIA firms. Furthermore, RIA firms vary significantly in scale
and approach.
2 US Intermediary-Sold Fund Distribution Review 2013, Key Observations, Section II – Channel Snapshots,
Strategic Insight, 2014.
A key driver of growth
in the RIA channel has
been a strong rise in
ETF sales.
382
214
141
38
338
70
64
10
2
0
10
0
199
58
1
24
57
2
Figure 2: RIA Total Assets ($B) by Fund Type -
December 2013 Active MF vs. Index MF vs. ETF
Source: Simfund Pro, 7.0 and Access Data, a Broadridge Company
US
Equity
M
unicipalBond
Taxable
Bond
Alternative
Balanced
/Allocation
Int’l/G
lobalEquity
$700
$600
$500
$400
$300
$200
$100
$0
ETFs
Index Mutual Funds
Active Mutual Funds

Our research suggests that segmenting the RIA industry by size, and building suitable segment
profiles, is a useful first step for a fund to build an action plan.
Figure 3 shows the percentage of the RIA universe that falls into each of four segments, defined
in terms of the size of assets under advisement. Most RIA firms fall into the “medium” and “small”
categories, but which segment might provide the best target for, say, a mutual fund or ETF issuer
planning its sales strategy?
Wirehouse versus RIA – Key statistics
The big four: Bank of America Merrill
Lynch, Morgan Stanley, Wells Fargo, UBS
57,000 financial advisors
$5 trillion assets
Represent 36% of US wealth
management3
14,000 RIA firms
55,000 financial advisors
$2.5 trillion assets in custody with
clearing firms
Represent 12% of investable assets4
Wirehouse RIA
3 Source: Aite Group Research Report, Tiburon Research and Analysis
4 Source: Aite Group Research Report, Tiburon Research and Analysis
• RIAs >$5B Require
Institutional Approach
and Not Part of Study
• RIAs < $5 Billion = 93%
of All RIAs Trading with
Major Custodians
• Includes RIAs With
Dual Registration
• Approximately 7,000
RIAs (50%) Manage Less
than $100 Million. Source: Access Data, a Broadridge Company
Figure 3: All RIAs Are Not Created Equal
Macro RIA - $2.5 - $5B
Small RIA - Less than $100M
Large RIA - $1B - $2.5B
Medium RIA - $100M - $1B
2%
5%
36%
50%
% of RIA Firms

• Small Market Segment -
High Usage of Funds
and ETFs, Less Upside
for Growth
• The Ideal Market
Segment - RIA Firms
Between $100M and $1B
• Funds and ETFs Are Over
50% of Assets Managed
by Medium Size RIAs
Figure 4 compares the percentage of total RIA assets controlled by each market segment with the
usage of funds and ETFs among RIAs within that segment.
This reveals that, for example, reaching out to small practices will mean contacting 50% of the
RIA channel—around 7,000 RIAs—but yield contact with only 14% of the channel asset base. If
the intention is to visit RIAs in person, this might turn into an expensive sales strategy. The small
RIA market has a high usage of mutual funds and ETFs (62%), but a telesales approach using an
inside sales team or hybrid wholesalers might be the most cost-effective option for this segment
of the market.
RIAs that have assets under management of between $100 million and $1 billion are categorized
as the medium sized RIA market segment. This market segment has a high usage of mutual funds
(33%) and ETFs (19%), as well as the largest segment of overall assets under advisement. Medium-
sized RIAs are not only more likely to use mutual funds and ETFs to manage client assets; these
firms also represent the largest upside for growth in terms of overall asset opportunity (i.e.,
assets not currently invested in mutual funds or ETFs).
Whether or not fund and ETF firms have a large sales team dedicated to the RIA market,
distribution executives should follow a similar logic that allows them to:
• Identify attractive RIA segments (e.g., those with the largest asset base)
• Confirm that these segments offer the biggest opportunities (e.g., in terms of sales of
relevant product types)
• Profile the segments to develop the next step of their sales and marketing activities, as
well as product positioning and future development.
Source: Access Data, a Broadridge Company
Figure 4: The Best Growth Opportunity for Funds and ETFs
Macro RIA - $2.5 - $5B
18%
18%
Large RIA - $1B - $2.5B
30%
16%
Medium RIA - $100M - $1B
52%
36%
Small RIA - Less than $100M
61%
14%
Funds/ETFs as % of Total AUM
% of Total Assets

Building action plans
Segmentation offers a great way to approach the RIA channel, but funds need to build three
other elements into their action plan:
• Access – How will RIAs access your products and find information about them?
• Analysis – How can you understand channel and segment preferences and behavior?
• Alignment – How can you best align sales resources with the RIA channel?
Access
RIAs will not sell fund products that they cannot easily access or find information about, and the
key to facilitating access is the relationship between RIAs and their custodians. Custodians offer
RIAs a range of essential services, and this has boosted the growth of the channel over the last
few years.
With the exception of the largest RIAs, which are not the focus of this report, RIAs generally work
with large brokers such as Charles Schwab, National Financial Services (Fidelity), TD Ameritrade
and others, that have custodial businesses geared toward smaller advisory firms and provide
access to the products they use to manage their client’s investment portfolio.
Some RIAs hold assets with multiple custodians, and in some cases the type of business the
RIA conducts may drive the selection of a custodian. For instance, an RIA that acts in a fiduciary
capacity may be more inclined to work with a bank that can provide unique trust services. Others
may be more inclined to use a brokerage firm that provides a wide selection of packaged products
and managed portfolio services.
It has not always been easy for funds to understand which custodians have strong relationships
with specific types of RIAs, not least because many RIAs use multiple custodians to different
degrees. Figure 5 shows the amount of RIA assets under custody with each of the four leading RIA
custodians and with the other key types of custodians (banks and independent broker dealers).
• Study Focused on RIAs
with Assets Held at
Major Custodians
• There Are ~14,000
RIAs, with $2.4 Trillion
Held at Custodians
• Many RIAs Use
Multiple Custodians
• Fund Firms Have National
Account Managers That
Cover Custodians Source: Access Data, a Broadridge Company
Figure 5: RIAs Can Be Found at The Top Custodians
Charles Schwab $900
Banks - US Bancorp, State
Street, BNY, Other
$250
TD Ameritrade $150
Pershing $300
Fidelity $600
Independent B/Ds - LPL, RJ,
RBC, Commonwealth
$150
RIA Assets Under Custody - $2.4 Trillion

Analysis – preferences and behavior
Of course, access alone doesn’t mean RIAs will use your products. Offering the right type of
product at the right time is also important. To do this, fund and ETF firms need to understand the
type of business conducted by RIAs, so that they can better target their approach, particularly:
• The type of accounts managed by the RIA, e.g., retirement, HNW, corporate
• The kind of decisions an advisor makes with regard to client accounts, i.e., discretionary
versus non-discretionary
• Product management approach, e.g., actively managed versus passive products
• Product types, e.g., funds, ETFs, managed accounts, alternative investments
Figure 6 sets out a breakdown of business by account type for RIAs.
We’ve already noted the predilection of RIAs for ETFs, which they often see as a relatively low
cost way to build particular risk and return characteristics into a portfolio. This is one example of
a more general preference among RIAs for cost conscious “institutional type” products, e.g., no
load mutual funds.
More advisors are being given discretion to select products and make asset allocation
adjustments for their clients. This discretionary role means that RIAs can, and will, easily move in
and out of products based on performance of the funds. One recent example was the relatively
high redemptions by RIAs of bond mutual funds in June 2013 following market uncertainty over
the start of the tapering of the Federal Reserve’s quantitative easing program.5
More generally,
RIAs look for performance and can pull out of investments relatively quickly if the promised
returns do not materialize.
RIA Assets by Account Type:
• Retirement Assets are
Primarily IRA and IRA
Rollover Accounts
• HNW Assets Include
Assets Held in Trust
• Individual Accounts
Include Managed
Portfolios
This discretionary role
means that RIAs can,
and will, easily move
in and out of products
based on performance
of the funds.
Figure 6: All RIA Assets by Account Type
RIA - Retirement Assets
RIA - Individual Assets
RIA - HNW and Personal Trust Assets
RIA - Charitable Assets
RIA Assets - Corporate
36.9%
16.2%
34.6%
7.7% 5.6%

Fund strategists must remember to appeal to the channel’s value-for-money preference, e.g., by
offering hard evidence of performance and explaining how products relate to current market
events and investment trends.
Strategists must also keep abreast of RIA channel trends. For example, a recent survey showed
that nearly 80% of RIAs think they are positioned to build share in the U.S. retirement plan
segment. Today, the majority of retirement assets managed by RIAs are in the form of IRAs or
IRA rollovers (84% of retirement assets managed by RIAs). RIAs are beginning to focus more of
their efforts on the management of defined contribution assets, which represent only 5% of RIA’s
overall retirement business today (see Figure 7). A recent TD Ameritrade survey indicated that as
the Department of Labor begins to tighten fiduciary rules, 48% of RIAs will be putting time and
effort into pursuing retirement plans this year.6
Figure 7 breaks down RIA retirement assets by the type of retirement plan.
5 Looking Ahead: Lessons from Taxable Bond Funds’ June Redemption Activity Across Distribution Channels,
Strategic Insight
6 TD Ameritrade Institutional Advisor Survey, 2014
RIA Retirement Account
Type:
• DC Accounts include –
401(k), 403(b), 457 and
Profit Sharing Plans
• IRAs include Individual and
Rollover Accounts
• Pension Plans Include
Defined Benefit
RIAs are beginning
to focus more of
their efforts on the
management of
defined contribution
assets
Figure 7: RIA Managed Retirement Assets
IRA Assets
Pension
Defined Contribution
84%
10.8%
5.3%

Alignment
Investment product manufacturers also need to align their sales and marketing resources with
the size of the opportunity. Determining the appropriate size for a territorial sales team and
setting realistic product sales targets could accomplish this. In addition to segmenting the RIA
market and spreading the best opportunities evenly among sales teams, it is also important to
understand where these RIA firms are located and how the most important firms are allocated
among different territories.
Figure 8 makes the task a little easier in relation to the RIA channel. The map listed below outlines
the number of RIA firms and the total industry RIA assets under management for each region of
the U.S.
Figure 8: U.S. Regions – RIA Distribution Channel
Total North America
AUM: $1.62 Trillion RIAs: 12,749
WEST
AUM: $181B
RIAs: 2,135
WEST COAST
AUM: $332B
RIAs: 2,338
MIDWEST
AUM: $320B
RIAs: 2,382
Canada - AUM: $11B; RIAs: 68
NORTHEAST
AUM: $433B
RIAs: 2,456
MID-ATLANTIC
AUM: $175B
RIAs: 1,443
SOUTHEAST
AUM: $171B
RIAs: 1,955

As well as helping with alignment, this kind of geographical segmentation can also reveal how
the distribution of RIAs by market segment (overall assets managed) are allocated by region
and territory. Once funds have identified and profiled a size segment that looks attractive, they
can begin to look at the distribution of this segment across the key sales regions and highlight
attractive product sales trends by location. Sales managers can also get a true measure of how
sales are progressing by analyzing their sales teams’ success by territory and market segment,
versus the mutual fund and ETF market overall. They can also get a better picture of growth by
product type across the different regions, as highlighted in Figure 9.
Figure 9: RIA 2013 Asset Growth by Region
2013 AUM Change - LTMF
2013 AUM Change - ETF
West Coast
19.3%
24%
West
20.2%
41.3%
Midwest Region
18.3%
31.1%
Southeast Region
16.5%
28.7%
Mid-Atlantic Region
17.3%
33.7%
Northeast Region
21.5%
27.6%
50 4540353025201510

Conclusion
The fast-growing RIA channel is made up of numerous firms that vary significantly in size
and character, making it difficult for funds to efficiently approach. Understanding the unique
characteristics of RIAs in terms of product usage, the client base they serve, and their general
investment philosophy assist mutual fund and ETF providers to better position their products
with RIAs.
In this report, we have shown how to meet the challenge through segmenting and profiling RIAs
and we have identified medium-sized RIAs as one key target. We’ve also outlined how information
can be used for more tactical decisions, e.g., concerning RIA geographic location and spread,
product positioning, and targeting the best prospects.
These considerations will be increasingly important in coming years if, as it appears likely, the
RIA sales channel continues to outpace the wirehouse channel’s rate of growth. Fund and ETF
distribution strategists will have a harder time analyzing and reaching the RIA community than
they do pitching to a handful of wirehouses today. But given the growth trends in fund and ETF
assets, it will be critical to their success and growth, and well worth the effort.

Contact Us
To further discuss the information in this document, please call us toll-free at +1 888 799 1744 or
visit access-data.broadridge.com.
About Broadridge
Broadridge Financial Solutions, Inc. (NYSE:BR) is the leading provider of investor communications
and technology-driven solutions for broker-dealers, banks, mutual funds and corporate issuers
globally. Broadridge’s investor communications, securities processing and business process
outsourcing solutions help clients reduce their capital investments in operations infrastructure,
allowing them to increase their focus on core business activities. With over 50 years of
experience, Broadridge’s infrastructure underpins proxy voting services for over 90% of public
companies and mutual funds in North America, and processes more than $5 trillion in fixed
income and equity trades per day. Broadridge employs approximately 6,400 full-time associates
in 13 countries.
For more information about Broadridge, please visit broadridge.com.
No part of this document may be distributed, reproduced or posted without the express
written permission of Broadridge Financial Solutions Inc.
© 2014 Broadridge Financial Solutions, Inc. Broadridge and the Broadridge logo are registered trademarks of Broadridge Financial Solutions, Inc.

The RIA Channel: A Roadmap for Driving Growth

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à The RIA Channel: A Roadmap for Driving Growth

Similaire à The RIA Channel: A Roadmap for Driving Growth (20)

Plus de Broadridge

Plus de Broadridge (20)

Dernier

Dernier (20)

The RIA Channel: A Roadmap for Driving Growth