See Table of Contents for Tiburon's Fee-Based Financial Advisors Research Report

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, has recently released its new research report on Fee-Based Financial Advisors. This research release summarizes some of the report's key findings.

The purpose of this report is to provide readers with an initial understanding of the fee-based financial advisors (RIAs) market, the fastest growing financial services market & distribution channel. The report goes to painstaking efforts to define this market, which is often improperly defined and measured by others. A parallel report published by Tiburon, called A Comprehensive Overview of the Product Usage, Business Models, & Best Practices of Fee-Based Financial Advisors, provides extensive bottom up analysis of the specific actions of fee-based financial advisors. This report provides a top down view of the market. This is the second draft of Tiburon's research on this topic.

Tiburon’s first draft of this report was published in 2007; that draft consolidated prior Tiburon research into one report.

This is Tiburon’s second draft of this report; this draft fleshes out the market history chapter, develops a framework for properly measuring the fee-based financial advisor industry, incorporates some recent Tiburon research on fee-based financial advisors’ use of technology, and reconciles Tiburon’s findings with a third-party research report. This draft also enhances the profiles of the three leading fee-based financial advisor custodians - The Charles Schwab Corporation, Fidelity Investments, & TD Ameritrade - as well as several smaller custodians, including Shareholder Services Group & Trust Company of America.

Key Findings
This report has a long list of interesting facts to share:

Market History

  • The broker/dealer exemption, dubbed the Merrill Lynch Rule, was abolished in 2007 causing reps offering fee-accounts to convert them to other compensation arrangements or register as investment advisors

Market Definition

  • To accurately count fee-based financial advisors one must add up Securities & Exchange Commission and state registered investment advisors, and subtract segments like mutual fund companies; one may or may not want to add back segments like family offices
  • The number of fee-based financial advisors ranges from 7,518 to 18,159 depending on which segments are included, with 18,159 possibly being the most useful estimate
  • One reason the fee-based financial advisor market is difficult to measure is because of the overlap with independent broker/dealers

Market Growth

  • There are 18,159 fee-based financial advisors, up nearly 40% since 2005
  • Fee-based financial advisors have $2.0 trillion assets under management, up nearly 40% since 2005
  • Fee-based financial advisor’s top three custodians have brought in more net new assets since the beginning of 2007 than the top four wirehouses

Leading Fee-Based Financial Advisors

  • The Charles Schwab Corporation is the largest custodian for fee-based financial advisors
  • The Charles Schwab Corporation touches over three-quarters of all fee-based financial advisors

Market Segmentation

  • There are 10,900 Securities & Exchange Commission registered investment advisors, up nearly 40% since 2005
  • Mutual funds’ consumer household penetration is 44%, down 12% from the 50% penetration in 2002
  • There are 9,800 hedge funds, up over 100% since 2000
  • The growth in TAMP assets has been rapid, with TAMPs now accounting for $255 billion; the addition of prudential financial’s assets into the TAMP category is one factor

Custodians, Independent Broker/Dealers, & Clearing Brokers

  • Fee-based financial advisors at The Charles Schwab Corporation and Fidelity Investments say that their primary decision criteria was service while TD Ameritrade fee-based financial advisors more often said cost
  • Nearly all fee-based financial advisors custody over half of their client assets at their primary custodian

Mutual Fund Companies & Other Traditional Product Companies

  • The Charles Schwab Corporation dominates the fee-based financial advisors custody business, with about one-half of all advisors
  • Break-away brokers account for an extremely small portion of the total broker population of 68,000
  • Almost all of fee-based financial advisors’ assets under management are invested in mutual funds, equities, & bonds

Fee-Accounts, TAMPs, Separately Managed Accounts, & Outsourcing Trends, Exchange Traded Funds, Hedge Funds, & Other Investment Product Companies, and Wealth Management & Family Office Service Product Companies

  • Wrap accounts are most utilized by the larger firms with more than $200 million assets under management
  • Fee-based financial advisors with $200 million assets under management and above largely utilize separately managed accounts
  • Fee-based financial advisors’ opinions differed widely on the importance of the emergence of exchange traded funds, rating it at 5.0 on average
  • Fee-based financial advisors interviewed rated the importance of offering wealth management services to clients at an average score of 7.3
  • One fee-based financial advisor said his firm increased CD business from $6 million per month to $12 million per month by offering Everbank CDs

Technology Companies & Other Key Vendors to Fee-Based Financial Advisors

  • Morningstar is the leading asset allocation software product used by independent reps
  • Data download software users are dominated by The Charles Schwab Corporation, with about half of all fee-only financial advisors using its software
  • Fee-based financial advisors are willing to pay an average of over $110,000 per year for a superior ASP model, with a median of $100,000

Future Predictions For The Fee-Based Financial Advisors Market

  • The fee-based financial advisors market will likely see many developments, including a slowing in the growth of the number of fee-based financial advisors, but rapid growth in their assets under management

Break-Away Brokers & Rapid Growth in Industry Assets Under Management

  • The number of fee-based financial advisors will grow from just over 16,000 to over 19,000 by 2012
  • Over three-quarters of fee-based financial advisors expect to grow their client assets 10% or greater per annum

Continuing Central Role of Custodians & Difficulty in Penetrating Custody Market

  • The three largest fee-based financial advisor custodians serve over 67% of end clients

Continuing Use of Mutual Funds & Individual Securities and Growing Use of Exchange Traded Funds, Alternative Investments, & Wealth Management Products

  • Mutual funds and individual stocks, & bonds account for nearly all of registered investment advisor assets under management. All other products account for 14% registered investment advisors assets under management

Long-Awaited Consolidation in the Industry & the Potential of Producer Groups

  • Finally there will be some consolidation in the fee-based financial advisors industry
  • Fee-based financial advisor mergers & acquisitions are up over 600% since 1999, with 81 deals taking place in 2007
  • Fee-based financial advisor mergers & acquisitions will increase to 163 per year by 2012

To better understand the developments for Fee-Based Financial Advisors, executives can purchase Tiburon's An Initial Overview of the Fee-Based Financial Advisors (RIAs) Market research report where the key findings highlighted above are covered in greater detail. Please contact Sarah Sage at SSage@TiburonAdvisors.Com or 415-789-2540.