Although the trade press is picking up on an obscure Bloomberg story about the rise of the fee-based advisory business, the original is so rich with implications for the industry that it needs to be dissected more thoroughly.
Investment News simply excerpted the article -- after all, it's a good 1,450 words long -- and highlighted a Cerulli stat indicating that RIAs now manage over $1.7 trillion in wealth. The fee-based business is growing faster than the commission-based side of things.
AdvisorOne covered largely the same ground but played up some of the details that Bloomberg was most interested in exploring: the rise of non-commission-based advisors as the primary factor in the growth of no-load fund families like Vanguard and T.Rowe Price, not to mention the burgeoning ETF universe.
For Bloomberg, with its primarily buy-side audience, this shift in the asset management space was the real news worth the headline, while the shift in the advisory landscape was only mentioned as a mitigating factor.
In the advisor media, we often get caught up in internal debates -- regulation, gossip, the benefits and drawbacks of competing business models -- and lose sight of how reps and RIAs alike fit into the larger securities industry and the market.
Stories like this are a good reminder of that big picture. Sure, it's useful to argue over whether a a data point means that a particular segment of the advisory business is rising or falling.
But if the fee-based business really has spawned the spectacular $1 trillion growth of the ETF industry, then the unexpected consequences of how advisors get paid are a lot bigger than whether commissions or fears work better for any given advisor.
And the discussion of Vanguard leaves the once-mighty "self-directed investor" out of the equation entirely. While the self-directed channel took a beating in the last two bear markets, direct sales is still the bread-and-butter business of companies like Vanguard and T. Rowe Price.
Did the rise of RIAs feed the success of no-load fund companies? Or are the two phenomena separate aspects of the same trend: the erosion of trust in wirehouse relationships in the wake of scandal after scandal?
The Bloomberg article notes the rise of Dimensional Fund Advisors -- now, stunningly, the 10th-biggest fund complex in the country -- as another sign of the RIA channel's maturation. This is a stronger argument, since DFA is not exactly what you would call a retail vendor.
But it still doesn't fully convince on the rise of ETFs being a symptom of the RIA explosion. Sure, fee-based advice may be the top factor in the rise of ETFs "sold through intermediaries," but hedge funds and other institutional players have adopted ETFs with much more passion than many RIAs.
After all, only 16% of the typical RIA's AUM is currently in ETFs, Cerulli says. At $1.7 trillion in AUM, that's only...27% in all the ETF assets out there.