What Kind of Growth?

There’s little doubt that the independent advisory business is growing rapidly, but the shape and direction of that growth remain one of the industry’s biggest unanswered questions.

The most recent Cerulli report confirmed that independent advisors are growing at the expense of traditional wirehouses, a trend that is unlikely to be reversed anytime soon.

Announcements of more firms being gobbled up by the likes of HighTower, Dynasty,  United Capital and Focus seem to be in the news everyday, and plenty of other companies are also setting their sights on establishing a national footprint – just ask Ron Carson, Ric Edelman or Marty Bicknell.

And most recently, Jeffrey Lovell and James Minnick, whose private equity firm wants to bankroll a national chain of trust companies for the high and ultra-high net worth market, beginning with the Houston-based Kanaly Trust Company.

In fact, United’s Joe Duran recently predicted the industry will eventually be dominated by five or six national “megabrands,” leaving only the left-overs for everyone else.

But is that scenario realistic?

For starters, there’s the looming force of the “wirehouses,” that antiquated term for the multi-billion dollar financial service superpowers:  Bank of America Merrill Lynch; Morgan Stanley Wealth Management; Wells Fargo Advisors and UBS Wealth Management.

Sure they’re losing market share. But so are the broadcast television networks, which are still very much around, still draw the biggest audiences and dominate television ratings and the advertising revenue pie.

In addition to their established base of customers – far larger than anyone else’s – the Merrills of the world continue to pour hundreds of millions of dollars into national advertising, marketing and branding campaigns. What RIA firm on the current scene has anywhere near the resources to begin to even make a dent in such a massive head-start?

Duran claims that comprehensive financial planning and advice will be the RIAs’ ace in the hole. But Merrill, Wells Fargo, UBS and Morgan Stanley all emphasize their own advisory expertise, and have hardly been in a coma while the anti-broker revolution has swept the industry. What’s more, it would be very hard to argue that true financial planning – especially done by certified financial planners – has replaced asset management (and gathering) as a priority for most RIAs.

Certainly, smart businessmen and industry veterans like Joe Duran, Focus’ Rudy Adolf and HighTower’s Elliot Weissbluth shouldn’t be under-estimated. Their progress over the past several years has been impressive and undeniable. But so are the hurdles they face on their way to a national brand: entrenched competition and the need for massive capitalization to achieve the necessary scale and infrastructure.

Which is why Advizent, Steve Lockshin and Charles Goldman’s brainchild, which wants to put leading independent firms from all over the country under a common branding umbrella while maintaining their own identity, is the other horse to watch as the industry grows.

Advizent faces formidable capitalization problems of its own, to be sure, but can also tap the resources of deep-pocketed vendors and custodians who also are poised to benefit if brand awareness for RIAs around the country increases.

Perhaps most realistically, cutting-edge advisory firms will grow to become strong regional powers and brands, but not national ones.

And there’s always the very distinct possibility that the independent advisory business will remain more or less true to its highly fragmented roots, which also means highly personalized.

It’s worked so far, hasn’t it?