Stockbrokers: Not MIA, But RIA — Trend Offers New Opportunity for IROs
Much has been written about the disintermediation taking place in our stock markets. Securities analysts and stockbrokers are fleeing (or being told to flee) Wall Street in great numbers. These individuals are particularly important especially when it comes to developing sponsorship for small cap stocks for they are the "story tellers," in that they help by "telling or explaining a company’s story."
An interesting trend that is emerging is the growth of the independent investment advisor also known as a Registered Investment Adviser (RIA). According to Boston-based Cerulli Associates, a research firm, the number of brokers serving individual clients at major firms dropped 14% to less than 55,000 in the three years ending in December 2008, while the number of independent financial advisers rose 29% to 33,000. The trend was in large part fueled by the collapse of various firms such as Lehman Bros. over the recent past as well as the public’s basic mistrust of major financial services firms in the wake of the recent market turmoil.
Clearly, money is at stake. Lots of it. As brokers leave, they leave with their clients. Last year, Cerulli Associates projected that brokers exiting major firms would take $188 billion in client accounts with them in 2009. The trend is expected to continue.
The major brokerage firms handled some 48% of the money from individual investors under management at the end of 2008, while independent advisers handled 19%, according to Cerulli. However, Cerulli forecasts that by 2012, the share held by major firms will be down to 41%, while the independent advisers’ share will be more than 23%.
Facilitating the growth of independent advisers is the help they receive in conducting trades, handling back office functions and marketing from discount brokerage firms such as Charles Schwab Corp. These firms are also heavily wooing brokers to go independent.
Unshackled by the dictates of a major firm, independent investment advisors have the freedom to invest client money as they see fit. They no longer have to stick to the stocks on the recommended list or push products that they are not comfortable with. They can discover interesting investment ideas on their own. Herein is where the opportunity lies. IROs would be well-advised to seek out this market.
As an investor relations and financial communications firm serving small and micro-cap companies, we are finding it increasingly difficult to introduce our hidden gems to independent investment advisors.
In past years we used a number of tools to target members of the financial community that should have an interest in our clients but targeting independent investment advisors is extremely difficult. Are there tools or organizations available to assist?
Hello Marty,
Thank you for your readership and comments. I think you’ve hit the problem head on. While this is a growing body of investors, I don’t believe there is a centralized source for targeting them as yet. This could be a business opportunity for one of the database companies.
Cheers,
Gene