The Richest Investors Are Increasingly Choosing RIAs. These Firms Are Winning Their Business.

The rich are increasingly choosing RIAs and multi-family offices to manage their money and the companies winning their business are doing two key things, according to a new report.

Over the last four years, the number of RIAs and multi-family offices, or MFOs, has grown steadily and attracted more high-net-worth and ultra-high-net-worth investors.

To be sure, the number of rich people in the U.S. is also increasing and they are getting wealthier. Since 2008, investors with less than $5 million to invest increased their wealth by 75% while investors with more than $5 million grew their assets 320%, from a total of $5 trillion to $21 trillion, over the same period, according to a report by Cerulli associates, a Boston-based research and consulting firm.

But RIAs and MFOs aren’t just riding with the tide along with other ships. In the business of serving the wealthiest investors, RIAs and MFOs have stolen market share from other types of wealth management companies, or channels, and Cerulli expects that trend will continue.

In 2016, RIAs were managing 11.7% of high-net-worth assets and MFOs were managing 7.6%. At the end of 2019, Cerulli estimates those market shares rose to 12.1% and 8.2%, respectively, and it estimates those percentages will continue to slowly increase this year. In 2021, Cerulli expects RIAs will manage 12.9% and MFOs 8.5%.

From 2016 through Cerulli’s 2021 estimate, bank trusts’ market share fell from 6.7% to 6% and the private bank channel’s fell from 26% to 23%. The market share of the so-called wirehouse channel — which includes Bank of America’s Merrill and wealth management units of Morgan Stanley, UBS, and Wells Fargo — shrunk from 30.6% to 29.5% over the same period.

Small basis-point changes over years is hardly alarming. But there are trillions of dollars under management in each channel, which means even minute shifts represent billions of dollars.

The growth has shown to be resilient, too. Independent RIAs and MFOs were the only two non-direct channels (asset managers that sell directly to investors) able to maintain five-year compound annual growth rates (CAGRs) above 10% amidst a down market in 2018. The independent RIA channel logged a CAGR of 10.1% and multi-family offices recorded 10.4%, according to Cerulli.

Broadly speaking, the RIAs and MFOs winning the business of the rich are doing two things, according to Cerulli. 

“Client demand for more personalized financial planning services and a democratization of technology for smaller firms have pulled advisors and client assets toward firms in the independent and family-office space while also making them more viable and competitive business models,” the report says. 

Those firms have “complete freedom to pick and choose between asset managers that they believe suit the needs of the investors they represent.” Exercising that freedom means happier clients (and possibly more referrals).

RIAs and MFOs are also adopting better technology and tools available to them that might have previously only been available to other channels. For example, some RIAs are choosing to use more sophisticated reporting software to better manage high-net-worth clients’ investments and communicate with them about their portfolios.

In 2019, more than 25% of advisor practices that cater to the wealthiest clients said they planned to introduce a “fully-integrated operating and investment management” system or an advanced client relationship management, or CRM, according to Cerulli.