Among $5B+ RIAs, fee-only firms lose market share to hybrid peers: Cerulli

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• Key insight: Large fee-only RIAs with more than $5 billion in client assets under management are losing market share to similarly sized rivals in other RIA channels. But advisors who chose the fee-only business model often do so out of strong convictions.
• Supporting data: Clients with $1.5 million in assets pay average annual fees of 1.47% — 0.92% in advisory fees and 0.55% in investment product fees, according to new research from Cerulli Associates. 
• Expert quote: "We are wildly passionate about educating investors that they have a choice." — David Hefty of Credent Wealth Management

When David Hefty sought capital for the growth of Credent Wealth Management, he told interested suitors that the firm would be "fee-only fiduciary today and forever," Hefty recalled. 

"If you don't like that, don't give us a bid. We had about 15 firms that dropped out of our bidding," said Hefty, who co-founded an Auburn, Indiana-based advisory practice in 2000 alongside his wife, Credent President Stacy Hefty, that has turned into a registered investment advisory and turnkey asset management firm with $5 billion in assets under management today. 

"It's more important that we do what we believe is right," he added. "And we can grow and scale and compete in a way that does not charge excessive costs to our investors."

Breaking down the average costs of investing

Credent crossed the $5 billion threshold with help from an 11% minority investment last year and additional financing in 2024 from Crestline Investors, an alternative investment management and private credit firm. 

The number of RIAs with at least $5 billion in client assets — has soared 77% in the past five years to 343 firms, according to a whitepaper released this week by consulting firm Cerulli Associates and commissioned by Credent. The Heftys' firm called for the research study out of the concern that "more true fee-only independent RIAs have evolved to take on the look of the broker-dealers that we previously left," as David wrote in a foreword. 

The study found that the largest fee-only RIAs lost market share over the past five years to similarly sized RIAs with a presence in two other industry channels: hybrid RIAs that use a brokerage, and independent RIAs that do commissionable insurance business.

That gap in market share has expanded in recent years despite substantial increases in both the number of each type of firm and in affluent investors' satisfaction with fiduciary advice. The RIA aggregators driving the industry's continuing waves of consolidation through M&A typically use the hybrid structure or operate with an insurance license; those firms' executives frequently argue that doing so enables the companies to deliver more services to clients at a cheaper price. 

But Hefty and other critics argue that fee-only RIAs can offer largely the same product and service menu with fewer conflicts of interest. And Cerulli's study said that compensation and advice standards remain difficult for many clients to grasp, to the point that 15% of affluent investors say they're not sure how their advisor or wealth management firm is paid. 

Using RIAs' disclosures to the Securities and Exchange Commission, Cerulli calculated that clients with $1.5 million in assets pay an average annual fee of 1.47%, with 0.92% attributable to advisory fees and 0.55% to investment product fees. The findings highlight the importance of explaining the full cost of investing, including how common industry arrangements such as revenue sharing and sales incentives can involve conflicts of interest — and affect the fees clients pay, Hefty said. He pointed out that Canadian regulators plan to begin enforcing a new "Total Cost Reporting" rule in 2027.

"We are wildly passionate about educating investors that they have a choice," he said. "Fee-only advice is still out there today. There are thousands of advisors offering it, and they just need to do a quick search and find one."

Key takeaways

Fees naturally vary widely, depending on the firm and the clients' asset allocations. Investment product costs for an allocation the Cerulli report described as a "heavy ETF user" were 0.34%, which is lower than a rate of 0.42% for a portfolio it called "no insurance use," the 0.55% average, the 0.56% paid by a "heavy mutual fund user" and 0.78% for a "heavy alternative user." And each of those fees from investment products usually come on top of the advisory costs clients pay to their advisors — traditionally 1% of their AUM.  

"Clients are increasingly willing to pay for advice, but many still struggle to understand the types of fees (e.g., advisory fees, product costs, commissions, and other charges) they may pay as a part of their wealth management relationships," the report said. "Fees should be evaluated in the context of the value of the services delivered. Lower-cost models may be appropriate for simpler needs, while more comprehensive relationships (e.g., advanced planning, specialized investment solutions, greater personalization) may justify higher all-in costs."

Other interesting findings included:

• Large fee-only RIAs are growing more slowly. Over the past five years, the number of fee-only RIAs with at least $5 billion in client assets rose at an 8% compound annual growth rate, reaching 121 RIAs. Over the same period, hybrid RIAs grew at a CAGR of 12% to 186 firms, while independent RIAs with insurance licenses grew at 37% CAGR to 36 firms.

• Market share at large fee-only RIAs fell. The market share of assets managed by those large RIAs among the hybrid firms remained flat over that span at 51%, while that of insurance-licensed big RIAs doubled to 14% and that of fee-only firms fell by 8 percentage points to 34%.

• More affluent investors are paying for financial advice. Cerulli culled data from its "Affluent Investor Tracker," which surveys U.S. adults that either have at least $250,000 in investable assets or an income of at least $125,000 per year before they are 40 years old. Last year, half of them described themselves as "advised" investing clients. In 2009, the share was only 35%. At least 69% of the group said that they are willing to pay for financial advice, which is nearly two times the 35% share from 2009. 

• Compensation and fees confuse many clients. About one-third of the affluent investors pay asset-based fees, 22% pay commissions, 10% pay a retainer or another flat fee and 15% were not sure how their provider is compensated. "While that percentage is almost certainly lower than it was a decade ago, the layers of fees paid for financial advice, investment management products and other services remain a challenge for even the most informed clients to assess," the report said.

• Fiduciary advice correlates with higher satisfaction. Affluent investors who said their wealth management provider or advisor "must always act in my best interest" were more likely to be satisfied than those who said their firm "may recommend products that put my provider/advisor's interests ahead of my own." Among affluent investors who said their wealth management provider or advisor "must always act in my best interest," at least 73% said they were satisfied and not seeking a new provider. That compared with 48% of those who said their provider "may recommend products that put my provider/advisor's interests ahead of my own." (That aligns with Cerulli's earlier finding that fiduciary advice enhances clients' trust.) A third group that identified their provider's standard of care as "sometimes" one and "sometimes" the other had a lower satisfaction rate of 42%.

• Team-based structures are common. Also consistent with earlier studies by Cerulli, the researchers found that 56% of RIAs use teaming, with ensemble advisory practices and centralized corporate support staff the most common types. 

The study concludes that the rising demand for financial advice and willingness to pay for it are giving investors a greater degree of choice. 

"For those considering an RIA, the key evaluation framework is no longer simply whether a firm is an RIA, but how its fiduciary obligations, breadth and depth of services, client service model, investment product platform and fee transparency align with the client's needs and expectations," the study said. "These factors can differ across broad types of RIAs in the market: hybrid RIAs with brokerage businesses, independent RIAs with insurance licenses and true fee-only independent RIAs. True fee-only independent RIAs have a shrinking footprint, in terms of assets under management, meaning it could be more challenging for clients to find a firm held exclusively to a fiduciary standard."

The fiduciary duty and the future of wealth management

Those differing growth rates of fee-only, hybrid and insurance-licensed RIAs raise questions around how RIAs are meeting client demands for more services beyond traditional investment management, according to Stephen Caruso, the director of wealth management at Cerulli. And that's why many firms do use their brokerage and insurance licenses.

"There has to be a layer of building out the robust support and robust advice guidance," he said. "It is more common for these large-enterprise RIAs to have to diversify in different ways."

At the same time, the findings come amid the ongoing regulatory debate within the industry and among policymakers. That clients of fiduciary RIAs expressed higher rates of satisfaction came as no surprise to Natalie Pine, the immediate past chair of National Association of Personal Financial Advisors, a fee-only planner advocacy and professional development group, and CEO of College Station, Texas-based RIA firm Briaud Financial Advisors. 

In June, NAPFA clarified the definition of "fiduciary," in its own bylaws.  

"'Fiduciary' means putting the clients' interests first, so why wouldn't a service that puts a client's well-being above the advisors' be more likely to leave them satisfied than one that sells a client something that ultimately leaves them worse off?" Pine said in an email. "To me this is a no-brainer. We are satisfied when our needs are met and we feel taken care of. We are not satisfied when our needs are not met, especially when in favor of someone else lining their pockets."

Even if hybrid and insurance-licensed firms are taking a growing share of assets, planners like Michael Walstedt, who launched Hoboken, New Jersey-based RIA firm Reliant Wealth Advisory in March, nevertheless say that fiduciary duty compels them to be fee-only. Though he is in the tough, early stages of building up a base of clients, Reliant is "playing on completely different fields" from RIA aggregators and other giant firms expanding through M&A, Walstedt said. Their larger profits may come at the cost of client satisfaction and personal touch. 

"That's where my competitive edge is as a solo startup RIA — I'm working for the client. I don't get paid by a bank. I don't get paid by a wirehouse. I don't get paid by anyone else besides a client's fees," he said. "You really lose that when you start to scale to the size of some of these significantly larger firms."

The Cerulli findings that the brokerage- and insurance-licensed RIAs are expanding faster than the ranks of fee-only RIAs, however, suggest that product sales and "the muddied rhetoric" in which people "throw around terms like 'fiduciary'" without being subject to the actual fiduciary duty by law are playing a role in those competitive dynamics, Pine said. A number of clients have told her that their prior firms didn't charge any fees at all.

"We all know that these businesses are not non-profits, so they are being charged, but in a way that the client doesn't see," Pine said. "If every advisor were required to disclose exactly how they got paid and how their company profited off of a client, I think clients would be shocked. Trying to explain this to the public is tough because it sounds like we are tattling and often clients don't want to hear it because they like their person and don't want to believe they are being charged."

In that murky environment, Hefty is encouraging peers to look closely and consider what the Cerulli findings mean for clients.

"Being fee-only is a choice — any advisor can choose it on any given day. No one's trapped in their business model," Hefty said. "I think it's something worthy of a conversation that we need to be having within the industry."