Traditonal wholesaling falls short for exacting, geographically dispersed wealth advisors. Asset managers are targeting independent advisors in hopes of becoming bigger players at the high end of the private-wealth market. And though the fast growing registered investment advisor (RIA) channel has influence over trillions of investment dollars, managers who want to makes inroads there have to adopt strategies at odds with traditional wholesaling paradigms, say industry watchers.

In recent weeks Russell Investment Group and Merrill Lynch Investment Managers (MLIM) have announced new appointments intended to increase sales to RIAs. As previously reported in FWR, Russell appointed three veterans from big-name financial service companies to extend its outreach to RIAs. Days later Mercury Advisors, MLIM’s non-proprietary distribution channel, promoted John Hayes from internal sales to become vice president for its RIA group in a move to expand “distribution opportunities within the independent advisor channel,” according to MLIM press release.

The independent advisory channel, which distributes about $13 trillion in assets, is the fastest growing outlet in the financial service arena, says Chip Roame, managing principal of Tiburon Strategic Advisors in Tiburon, Calif. Fee-only independent brokers set the pace in terms of the number of new practitioners; RIAs in terms of asset growth. That goes far to explain managers’ interest in independent advisors – especially when coupled with slower growth on the institutional side.

Another factor is the promise of fat fees from employee-benefit plan rollovers as baby boomers head into retirement. The Boston-based Financial Research Corporation (FRC) reckons that $2.4 trillion will roll into individual retirement accounts between 2003 and 2010. The FRC adds that the rate of yearly flows will more than double from 2002’s $188 billion to $400 billion by the end of the decade.

Beyond chasing mass-affluent rollover assets, managers also see RIAs as a ticket to the sticky – and expanding – world of ultra wealthy investors. “They have high-net-worth and ultra high-net-worth clients,” says Daniel Dart, COO of Mercury Advisor’s business in the Americas, citing reasons for his firm’s new outreach to RIAs. He adds that RIAs tend to be source-neutral about investment products – a potentially compelling trait for a wirehouse-owned manager. “They’re interested in best-in-class products and they don’t care where those products come from,” Dart says.

In targeting high-end RIAs, managers are chasing a juicy demographic. At the end of 2003, there were at least 7 million households worldwide with more than $1 million in assets under management, according to the Boston Consulting Group’s 2004 Global Wealth report. The number of U.S. households worth of more than $10 million has more than doubled since 1989 to 430,000, according to the U.S. Surveys of Consumer Finance. In turn, the size and expansion rates of the high- and ultra high-net-worth markets has prompted an up-market migration across the financial service industry, as players scramble to serve that rich investors – and capture the steady fees associated with them.

Ross Rogers, president of Minneapolis-based third-party platform provider GlobalBridge, agrees with Dart’s assessment of RIAs as an attractive entrée to the high-net-worth market. “They’re really forging the way in wealth management” by taking a “very holistic approach to client advice that combines investment [planning] and estate planning.” That, he adds, stems from that fact that many RIAs started out in wirehouses and “struck out on their own to be very client-focused.” As a result, many have taken the time and trouble to assemble networks of advisors – accountants, trust specialists, insurers – that help them see to their wealthy clients’ needs.

But Tiburon’s Roame says that the traditional wholesaling model doesn't work in the independent advisory channel. “It’s not like walking into a Merrill Lynch office and seeing 90 guys in one afternoon,” he says. “There are 19,000 fee-only advisors, which means a traditional wholesaler has something like 38 times as many places to visit. RIAs are very hard to track down in the traditional way.”

To get around that, some wholesalers are using the conference circuit to raise their firms’ profiles. “The savvier ones are speaking at conferences, they’re setting up booths at conferences, they’re out there mingling,” says Roame.

GlobalBridge’s Rogers adds that the successful wholesalers are also ready to meet high-end RIAs' specific requirements. “Their main concern is building their businesses and they’re very focused on open architecture and investment skills, so they want someone who can talk to them about their businesses or someone who is steeped in investment knowledge. The RIA marketplace responds less favorably to the traditional product-du-jour approach.”

Managers also have to understand that independent advisors don’t use investment products like wirehouse reps, warns Roame. “They’re not going to put 50% to 60% [of their clients’ assets] with one fund company,” he says. “RIAs pride themselves in doing their own research and taking their own approaches, so even if you score you're only getting 13%.”

Still, notes Steve Katcher of Altoona, Pa.-based KF Consulting, RIAs are known for their loyalty to managers. “If you give them good solid top-quintile performance, they’ll stick with you,” he says. “That can pay off over time when you’re talking about an RIA [who advises on] a couple of hundred million dollars.” –FWR