Rising Interest Rates Create New Dynamic in Insurance General Account Landscape

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Rising interest rates have ushered in a new investment environment for insurers, creating opportunities for managers with strong capabilities in managing U.S. fixed-income strategies, according to the latest Cerulli Edge—U.S. Institutional Edition.

Prior to 2021, insurance general accounts (IGAs) were operating in a vastly different investment environment due to consistently low interest rates. Yields on traditional public fixed-income products often were unattractive reinvestment opportunities, causing insurers to look elsewhere.

However, since the consistent rise in interest rates through 2022, insurers now see much more attractive reinvestment opportunities in traditional public fixed-income markets. In a survey Cerulli conducted during the first half of 2023, almost three-quarters of insurers (73%) polled planned to increase their allocations to traditional U.S. fixed-income products. In the first quarter of 2021, only 10% of insurers polled expected to increase allocations to U.S. fixed-income.

Despite high barriers to entry, insurers represent a particularly attractive channel for many asset managers with strong fixed-income capabilities. “The IGA channel is the largest institutional channel and is projected to continue growing, unlike other institutional channels such as corporate defined benefit plans,” says Chris Swansey, senior analyst. Fixed-income managers that demonstrate strong investment capabilities could secure long-term relationships. “Insurers are known to maintain relatively ‘sticky’ relationships, as they prefer to stick with the same managers for long periods,” he adds.

Asset managers attempting to win insurance assets will likely need insurance-specific capabilities in-house. “Insurers operate differently from other institutional investors in several ways,” says Swansey. “They have specific investment accounting requirements (e.g., STAT vs. GAAP), are subject to risk-based capital charges, and are taxable investors. Given these requirements, managers may find success building insurance businesses by hiring insurance specialists to build dedicated insurance sales teams,” he concludes.

Amber Group Partners with Solidus Labs to Bolster Crypto-Native Market Integrity

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Captación de capital de Dynasty Financial

Solidus Labs, the category-definer for crypto-native integrity solutions, announced that it has partnered with Amber Group, a leading provider of digital wealth management and crypto liquidity solutions.

The collaboration aims to integrate HALO, Solidus’ comprehensive crypto-native trade surveillance and market integrity hub, into Amber Group’s platform to enhance risk monitoring, prevent market abuse, and ensure greater compliance with evolving regulatory requirements.

Currently monitoring over 1 trillion events per day across more than 150 markets, safeguarding over 25 million individual and institutional entities, Solidus’ HALO will empower Amber Group to identify suspicious trading activity and respond in real-time using its machine learning-powered trade surveillance detection models.

“At Amber, security and compliance is fundamental to our business,” said Lin Ma, Chief Legal Officer of Amber Group. “We’re pleased to be partnering with Solidus Labs, recognized leader in crypto market integrity solutions. Their trade surveillance solution will enhance our suite of compliance measures, protect the integrity of our platform for our users and help us better meet evolving regulatory expectations.”

The partnership takes place amidst the rapid growth of Hong Kong’s digital asset market, which has seen the introduction of the new licensing regime for virtual asset trading platforms. Under this regime, Hong Kong’s Securities and Futures Commission (SFC) has established comprehensive licensing guidelines for centralised virtual asset trading platform operators to ensure stronger customer protection.

“Amber’s vision and commitment to bring best-in-class liquidity solutions and cutting-edge trading infrastructure to both institutional and high-net-worth investors presents a unique opportunity to propel the growth and maturation of the digital asset industry,” said Asaf Meir, Solidus Labs’ Founder and Chief Executive. “We’re delighted to support their effort through our crypto-native tools, and we look forward to working together to enable safer crypto trading.”

As part of Solidus’ commitment to the Hong Kong market, the firm recently held its world-renowned DACOM – Digital Asset Compliance and Market Integrity – Summit in Hong Kong. Bringing together the builders, movers and shakers of a safe and regulated crypto industry, DACOM HK focused on the Hong Kong SFC’s virtual asset licensing guidelines and how it can promote crypto adoption, DeFi’s market integrity challenges, and the industry’s ongoing collective action to make crypto markets fairer for everybody.

Holiday Travel is Cleared for Takeoff

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Americans are ready to travel for the holidays. For the third consecutive year, Deloitte explores travel intent ahead of the pivotal holiday season and the overall impact on the travel industry.

According to this year’s report, “2023 Deloitte Holiday Travel Survey,” concerns about health and travel delays are diminished as consumers across income groups map out trips to make this holiday season a memorable one.

Nearly half (48%) of Americans intend to travel between Thanksgiving and mid-January, with a larger share taking trips beyond only visiting family and friends. Desire to keep traditions alive may convince travelers to pack their bags, though many are evaluating how often, and for how long, they head out this season.

While more Americans intend to travel, they will take fewer trips (1.88 in 2023 vs. 2.01 in 2022) that are shorter in duration (75% say their longest trip will last one week or less vs. 69% in 2022), but plan to spend more this year ($2,725 in 2023). With fewer trips planned, travel concentrates around two major holidays: Thanksgiving through the end of November (33%) and Christmas through New Year’s Eve (27%). Trips get longer farther into the holiday season.

Holiday travelers are keen to connect with loved ones: 58% say time with friends and family is the top motivator for their longest trip this season. Another 51% seek rest and relaxation. While both are often big travel motivators, travelers put a greater emphasis on these factors during the holidays than in the summer.

Boomers are traveling again: They constituted just one-fifth (21%) of the traveling public over the holidays in 2022; this year the group will make up 29% of travelers. Boomers also tend to spend more per trip compared to Gen Z and Millennials.

Younger generations plan to take more trips and to spend more across the season: Gen Z travelers plan an average of 2.1 trips over the holidays, a close second to millennials at 2.2. One in 4 Gen Z travelers say they will significantly increase their budgets year-over-year, the highest portion of any generation.

About 1 in 5 travelers (18%) say they are spending significantly less on holiday travel than last year. The same share of travelers (18%) plan to spend significantly more this season. Financial concerns are the main reason travelers will spend less, while higher prices are the top factor they plan to spend more.

For those not traveling, finances are the top deterrent (38%). Health and disruption worries are lower on the list, cited by only 11% of non-travelers each (compared to 18% in 2022) and indicating that the concerns of prior years may be leveling out.

Travelers pack away some pandemic-era preferences

Some preferences that saw a surge during the pandemic are declining as travelers plan to return to hotels and international destinations in greater numbers. As Americans return to travel’s new normal, the influence of younger generations is growing, elevating the role of social media in trip planning.

Hotels are back in a big way, as 56% of holiday travelers plan to book a stay at some point this holiday season, up from 35% in 2022. Preference for private rentals remains flat at 15%.

More than one-third (37%) of travelers will take a flight at least once during the holiday season. Meanwhile, about half (53%) of American travelers are planning road trips, down from nearly two- thirds (64%) in 2021.

While 26% of air travelers will fly to international destinations, overseas travel makes up a bigger share of travel in early January compared to the rest of the season. International travelers are also more likely to stay in paid lodging (73% in hotels and 28% in private rentals for at least part of their longest holiday trip), as 1 in 5 say they are making up for trips they missed out on due to the pandemic. International travelers are more likely to rely on social media to select their travel destinations (52% vs. 39% domestic travelers) as well as social content like apps, videos, travel websites and Generative AI.

Participation in travel activities is up across most categories year-over-year, including visiting a major attraction (43% in 2023 vs. 36% in 2022) and attending a ticketed event such as a concert or festival (30% in 2023 vs. 23% in 2022).

Gen Z and millennials lead in efforts to travel more sustainably, particularly when it comes to prioritizing hotels with higher sustainability ratings (23% and 25%, respectively), which is the most popular environmentally conscious travel choice.

US Consumer Confidence Fell Again in October

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The Conference Board Consumer Confidence Index® declined moderately in October to 102.6 (1985=100), down from an upwardly revised 104.3 in September. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—declined to 143.1 (1985=100) from 146.2.

The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell slightly to 75.6 (1985=100) in October, after declining to 76.4 in September. The Expectations index is still below 80—the level that historically signals a recession within the next year. Consumer fears of an impending recession remain elevated, consistent with the short and shallow economic contraction we anticipate for the first half of 2024.

“Consumer confidence fell again in October 2023, marking three consecutive months of decline,” said Dana Peterson, Chief Economist at The Conference Board. “October’s retreat reflected pullbacks in both the Present Situation and Expectations Index. Write-in responses showed that consumers continued to be preoccupied with rising prices in general, and for grocery and gasoline prices in particular. Consumers also expressed concerns about the political situation and higher interest rates. Worries around war/conflicts also rose, amid the recent turmoil in the Middle East. The decline in consumer confidence was evident across householders aged 35 and up, and not limited to any one income group.”

Peterson added: “Assessments of the present situation were driven by less optimistic views on the state of business conditions, but consumers’ rating of current job availability held steady. Fewer consumers said that business conditions were good, and more said they were bad. Regarding the employment situation, slightly fewer consumers said that jobs were ‘plentiful’ compared to September, but the number saying jobs were ‘hard to get’ also declined. However, when asked to assess their current family financial conditions (a measure not included in calculating the Present Situation Index), those responding ‘good’ rose, and those citing ‘bad’ were little changed. This suggests consumer finances remain buoyant in the face of elevated inflation.”

“Expectations for the next six months stayed below the recession threshold of 80, reflecting a decline in confidence about future business conditions, job availability, and incomes. The continued skepticism about the future is notable given US consumers—at least through the third quarter of this year—continued to spend heavily on both goods and services. Expectations that interest rates will rise in the year ahead ticked up in October, and the outlook for stock prices weakened slightly. Furthermore, average 12-month inflation expectations increased in October to 5.9 percent, after holding steady at 5.7 percent for the past three months. The measure of expected family financial situation, six months hence (not included in calculating the Expectations Index) continued to fall.”

“More than two-thirds of consumers still said recession is ‘somewhat’ or ‘very likely’ in October. The fluctuating soundings likely reflect ongoing uncertainty given mixed buying plans. On a six-month moving average basis, plans to purchase autos and appliances rose while plans to buy homes—in line with rising interest rates—continued to trend downward.”

Vontobel strengthens Wealth Management team in Miami

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Vontobel Swiss Financial Advisors (Vontobel SFA) has appointed Arturo Castelo and Silvia Ales as Senior Relationship Managers to support Latin American investors with diversified wealth management solutions. 

With nearly 40 years of combined experience in the financial services industry, Arturo Castelo and Silvia Ales will be  responsible for strengthening client relationships and ensuring high-quality service standards. Arturo will focus on investors  primarily in Mexico, and Silvia will cover Central America and Colombia. 

Arturo joins Vontobel SFA from B. Riley Wealth Management, where he was a financial advisor focused on systematic and ESG equity investing. Previously, he held senior roles at Morgan Stanley Wealth Management and UBS.  

Silvia brings more than 17 years of experience from Citi Private Bank’s Latin America Region in Miami, where she held various roles working with ultra-high-net-worth investors in Central and South America. 

“As we look forward to building on our offering for Latin American clients, Arturo’s and Silvia’s client-oriented skillset across  asset classes will be instrumental in deepening our relationships and meeting clients’ investment goals,” said Victor Cuenca, Head of Vontobel SFA Miami Branch. “We are committed to helping clients diversity their wealth globally with quality solutions,  and these appointments support our advancement of these efforts in-line with the needs of our clients.” 

Vontobel SFA offers US and Latin American investors tailored solutions, centered on diversification through a variety of  jurisdictions, geographic areas and currencies. Vontobel SFA is headquartered in Zurich, with offices in Geneva, New York and  Miami. Vontobel SFA is the largest Swiss-domiciled wealth manager for US clients seeking an account in Switzerland for  diversification purposes.

M&A Hit Multi-Year Low, S&P Global Market Intelligence Quarterly Report Finds

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EBW Capital and AIS Financial form strategic alliance

M&A market retrenched to even more depressed levels in the third quarter of 2023, according to S&P Global Market Intelligence’s newly released quarterly global Q3 2023 M&A and Equity Offerings Market Report.

During the period, only 8,775 deals were announced around the world, down 17.3% from the prior quarter and 28.3% from year-ago levels.

Equity issuance activity received some fanfare in the third quarter due to a handful of initial public offerings, but the momentum from those deals has been slowed by the lackluster public market debuts from companies involved in the more notable IPOs.

The prospects for dealmaking going forward are challenged by economic uncertainty and the likelihood that interest rates will stay higher for longer. Also, geopolitical unrest is growing with the latest Israel-Hamas war, and that creates yet another headwind for those considering transactions.

“Heightened geopolitical concerns add to an already uncertain macroeconomic outlook, and uncertainty is never good for dealmaking,” said Joe Mantone, lead author of the report. “The Federal Reserve is nearing the end of its rate-hiking cycle and gaining clarity on peak rates would be positive for transaction activity, but if rates remain elevated, that will keep financing costs up and make some deals harder to pencil out.”

Key highlights from the quarterly report include: Global equity issuance has fallen quarter over quarter in six of the last seven quarters; the total value of global IPOs fell 9.1% quarter over quarter and plummeted 25.8% year over year to $33.80 billion and the third quarter marked the first time since the pandemic that the number of global M&A announcements dropped below 10,000.

The quarterly report provides an overview of global M&A and equity issuance trends, offering insights into the sectors and geographies that are seeing the most activity. It also focuses on deals with the highest valuations and strategies larger players pursue that underscore trends occurring throughout an industry. S&P Global Market Intelligence has produced the quarterly, global M&A and equity offering report since the first quarter of 2018.

Principal Announces Financial Services Leader Pablo Sprenger to Head Latin America

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Principal Financial Group announced Pablo Sprenger will join the company as executive vice president and president of Principal Latin America, effective Nov. 8.

In this role, Sprenger will lead teams across three markets – Chile, Brazil, and Mexico – overseeing all aspects of the company’s pension and asset management operations, sales and distribution, and growth strategies within the region. Sprenger will report to Pat Halter, president of Principal Asset Management.

Sprenger joins Principal with over 20 years of industry experience, most recently as chief executive officer of SURA Investments. He has held various leadership roles across the region supporting pension, wealth, and asset management across multiple markets. Sprenger will be based in the Principal offices in Santiago, Chile.

“Latin America continues to be an important region for Principal with continued potential to expand our asset management and retirement capabilities across our markets,” said Halter. “Pablo brings deep knowledge of the countries we’re in and the industries and customer segments we serve. His leadership will be critical in driving growth across Latin America and strengthening our relationships in the region with important partners, including joint venture partner Banco do Brasil.”

As part of this transition, Sprenger will work closely with Luis Valdés, executive chairman of Principal Latin America and former president of Principal International, who has led the region on an interim basis since the retirement of Roberto Walker earlier this year.

“As I embark on this exciting journey to lead Latin America for Principal, I am fueled by a vision of growth, a commitment to excellence, and the further evolution of the firm’s culture known for its collaboration, innovation, and client service,” said Sprenger. “Together, we’ll continue to offer a world-class experience that is distinctive to Principal — one that combines local insights and global perspectives, which help us identify the most compelling opportunities for our clients.”

About Pablo Sprenger

Sprenger comes to Principal with more than 20 years of investment industry experience. He previously spent 12 years at SURA Asset Management, most recently as chief executive officer of SURA Investments, the investment and wealth management arm of SURA Asset Management. Prior to this role, Sprenger held leadership positions at SURA Mexico, ING Group Chile, ING Wealth Management, AFP Bansander, Falabella, and AFP Cuprum. Sprenger earned a bachelor’s degree in industrial engineering from Pontificia Universidad Católica de Chile and Master of Business Administration Degree from Kellogg School of Management at Northwestern University. He serves on boards in Mexico and Chile, in addition to devoting time as a part-time business lecturer at the Pontificia Universidad Católica de Chile in Santiago.

Real Estate Trends Vary Across Texas Market

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Though the overall median price of homes sold in Texas in the third quarter of 2023 decreased 1.5% compared to the same period one year ago, more Texas metro areas saw median price increases than decreases, according to the 2023-Q3 Quarterly Housing Report released by Texas Realtors. In Q3 2023, active listings, days homes spent on the market, and months of inventory all saw increases from the same period in 2022.

“We are continuing to see the housing market progress toward more balance between buyers and sellers,” said Marcus Phipps, 2023 Chairman of Texas Realtors. “An increase in the supply of homes and the average number of days homes stay on the market means that buyers in many areas may have more choices and a little more time to make decision. However, these trends vary by metro and even by neighborhood, so it’s smart to discuss market conditions in your area with your Realtor.”

The median sales price of Texas homes in Q3 2023 decreased to $340,000 from $345,000 in the same period last year. Approximately half of the homes sold in the third quarter were in the $200,000 – $399,999 price range. At the lowest and highest ends of the price distribution, 13% of homes were sold for under $200,000, while 4% sold for at least $1 million.

Texas homes spent an average of 48 days on the market in Q3 2023, 17 days longer than in the same quarter last year. Taking the number of days to close into consideration, on average it took 11 days longer to sell a property in Q3 2023 than in the same quarter last year.

Months of inventory, or how long it would take to sell the existing number of homes on the market at the current pace of sales, stood at 3.7 months in the third quarter of 2023, which was an increase from 2.7 months in the same period last year. A balanced market is estimated at 6 to 6.5 months of inventory, according to the Texas Real Estate Research Center.

Active listings increased 15.2% in the third quarter of 2023 compared to the same period in 2022.

Nearly Half of Investors Believe the 2024 Election Will Have a Bigger Impact on Portfolios Than Market Performance

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As the political noise leading up to national elections in 2024 begins its long crescendo, many American investors are nervously considering implications for their investment portfolios.

Regardless of political affiliation, nearly half (45%) of investors believe the results of the 2024 U.S. federal elections will have a bigger impact on their retirement plans and portfolios than market performance, according to Nationwide’s ninth annual Advisor Authority survey, powered by the Nationwide Retirement Institute.

In addition to general pessimism regarding the election’s impact on retirement prospects, investors fear the impact of new policy and opposing party rule on the U.S. economy. Nearly one in three (32%) investors believe the economy will plunge into a recession within 12 months if the political party with which they least align gains more power in the 2024 federal elections.

Roughly the same percentage (31%) believe the party they least align with gaining more power in office will negatively impact their future finances, and 31% believe their taxes will increase within 12 months.

“As we get closer to the 2024 election, we’re going to see more messaging and campaign ads that portray worst case scenarios, creating anxiety in investors that can lead to short-sighted, emotional decisions,” said Eric Henderson, President of Nationwide Annuity. “It’s important for investors to not get caught up in the ‘what ifs,’ and instead focus on what they can control. A proactive step would be having a conversation with their advisor or financial professional and establishing a long-term plan – or revisiting the plan they already have in place – to ensure it remains aligned with their goals regardless of which party takes control in Washington.”

Recession fears are strong across party lines

Some issues are viewed differently across party lines. More than half (57%) of investors who identify as Democrats say market performance will have a bigger impact on their retirement plans and portfolios than the results of the 2024 election, compared to 47% of investors who identify as Republicans.

However, Republicans tend to brace for election results more than their Democrat counterparts. More than two thirds (68%) of Republican investors believe the outcome of a presidential election will have a direct, immediate and lasting impact on the performance of the stock market, compared to 57% of Democratic investors. Independent investors are the least concerned with election results; fewer than half (40%) feel the results of next year’s election will have a bigger impact on their retirement plans and portfolios than market volatility – the lowest of the three primary political demographic groups.

“While it’s natural to feel the party you support will deliver the best economic outcome, history tells us that these instincts can be blown out of proportion,” said Mark Hackett, Chief of Investment Research for Nationwide. “Remember that election results in either party’s favor have historically had little impact on future investment returns. That’s why it’s important to apply a strong filter to election news coverage to maintain an objective understanding of the events shaping our world. It’s best to stay focused on the fundamental drivers of investment performance (e.g., company earnings, revenue growth, profit margins, etc.) and leading indicators of economic conditions.”

Older investors are more fearful

The general fear of a recession is magnified for those closest to retirement ahead of next year’s election, as any wrong decision could have a lasting impact on how they live through retirement. Pre-retiree investors (defined as non-retired investors aged 55-65) are more concerned about an impending economic recession (50%) than investors overall (41%). Pre-retirees and those already in retirement are more concerned about inflation than investors overall (66%, 66% vs. 61%, respectively).

As a result, pre-retirees are planning to be more conservative with their assets than other investors – perhaps because they don’t have the time to recoup losses. One third (33%) of pre-retiree investors are managing their investments more conservatively in anticipation of next year’s election, compared to just 31% of all non-retired investors. In addition, just 12% of pre-retirees and 4% of retired investors plan to invest more aggressively in anticipation of next year’s election.

Economic fears spur changes to spending

As campaigning and political punditry ramp up, economic factors are still top of mind for those saving for retirement.

Overall, investors who are not retired see inflation (47%), an increased cost of living (42%), and a potential recession (31%) as the greatest long-term challenges to their retirement portfolios. To compensate, they are changing their spending and investing habits, including making adjustments to cut spending and ensure a timely retirement.

To save more for retirement in the current environment, one third (33%) of investors are avoiding unnecessary expenses, such as vacations, jewelry, and shopping sprees over the next 12 months. A quarter (25%) of non-retired investors also say they will need to work longer to save money for retirement in case Social Security runs out of money, a hard reality that is projected in 10 years, according to the most recent Social Security Trustees Report.

Despite pulling back spending and adjusting investments as political pressures and economic turbulence collide, investors are entering election season on a cautiously optimistic note. Recession fears remain elevated but are down slightly from last year – four in five (80%) investors are now concerned about a U.S. recession in the next 12 months, compared to 85% in 2022. Four in ten (40%) of all investors and 32% of pre-retirees describe their financial outlook for the next 12 months as “optimistic.”

Advisors empathize with investor concerns

Financial advisors understand the fears that can stem from changes in Washington and can help investors navigate through it. Like investors, financial advisors view inflation (46%) as the most immediate challenge to their clients’ retirement portfolios. However, they are not immune to a partisan bias; 38% believe the stock market will be volatile for the 12 months following the election if the party they least align with gains more power after next year’s federal elections.

In the face of volatility spurred on by partisan noise and a potential exchange of power in Washington, advisors still maintain a more balanced, nuanced view of the election than their clients, in part because many have designed long-term strategies to protect them against volatility. Despite election jitters, most advisors (56%) believe staying the course – i.e., not changing their clients’ investment strategies – is the best course of action in an election year.

With this approach in mind, advisors are recommending and implementing their strategies accordingly. Almost all (96%) currently have a strategy in place to help their clients protect their assets against market risk, an increase from 92% in the last 12 months.

Annuities (80% vs. 78%), diversification and noncorrelated assets (72% vs. 57%), and liquid alternatives such as mutual funds or ETFs (54% vs. 31%) all saw at least a slight increase as solutions used by advisors to help their clients protect their assets against market risk in the last year.

“While elections are important, and it’s good to be engaged in our democratic process, making emotional decisions based on what you think will happen runs the risk of derailing your retirement goals,” said Henderson. “Advisors and financial professionals should seize the opportunity to engage with their clients to reinforce the importance of sticking to their long-term plan. Another way to address client anxiety is to help them understand the value of protection solutions, like annuities, that guarantee income in retirement and guard against market volatility – regardless of who ends up winning the election.”

Independent and Hybrid RIA Channels Lead in Advisor Headcount Growth

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While established industry giants in the wirehouse channel make up four of the top-five broker/dealer (B/D) firms when ranked by assets under management (AUM), financial advisors continue their move toward independence, seeking greater flexibility to run their practices as they see fit, according to the latest Cerulli Edge—U.S. Advisor Edition.

Independent and hybrid registered investment advisors (RIAs) experienced the largest year-over-year advisor headcount growth rate, a trend that holds true over five- and 10-year periods. The promise of independence is alluring to advisors and continues to draw movement from the B/D to the RIA channels.

According to Cerulli, the number of independent RIA firms has grown at a compound annual growth rate (CAGR) of 2.4% over the last decade, while the number of advisors operating at independent RIAs has grown at a CAGR of 5.2% over the same period.

While Cerulli projects industry financial advisor headcount will remain relatively flat over the next five years, among all channels, independent and hybrid RIAs are projected to gain the most in advisor headcount marketshare. By 2027, Cerulli projects the channels will control nearly one-third (31.2%) of intermediary asset marketshare, continuing the trend of advisors and assets moving to these channels.

“Although the wirehouse channel dominates industry assets and average advisor productivity, the flexibility and higher payout percentages of independence is appealing to many advisors,” says Andrew Blake, associate director. “B/Ds will need to continue to leverage the benefits of working under corporate scale, which include access to technology, training, and client resources, to highlight the alluring aspects of affiliation with a major B/D. Otherwise, they risk seeing channel migration trends continue.”