As baby boomers retire, the demand for top-quality advice accelerates
 
The extensive new health insurance law; Twitter’s initial public offering; Congress’s partial shutdown of the federal government; Ukraine. It has been a tumultuous time to be an investor, and that is just in the past 12 months.

No wonder, then, that more and more investors have been gravitating towards advice on how to manage their money, giving up on the do-it-yourself trend that peaked in the late 1990s.

This desire for advice, accelerated by the transition of millions of baby boomers into retirement, has helped propel the growth of the segment of the investment industry that is based on advice: the registered investment advisers, or RIAs.

It is true that many of the financial advisers working in big brokerages have evolved their practices to where they now spend much more time providing advice than carrying out “buy” and “sell” transactions.

RIAs, though, have never made their living on transactions and have always been advisers first. While RIAs have been around since the 1940s, it has been in the past 10-15 years that they have grown, as a group, to rival the large brokerage firms in influence. Part of that growth can be traced to the investing complications – such as the 1990s dotcom bubble and the 2008 global financial crisis – that drove individual investors to seek trusted advice.

This partly stems from advances in technology that now allow an RIA practice with four advisers to offer the same tax accounting, financial reporting and other services provided by a group such as Merrill Lynch and its 15,000 financial advisers. This allows for a range of business types, and there are many RIA business models that can succeed, as the profiles of FT 300 firms in this report make clear: whether it is focusing on older investors, the millionaire next door or other clients.

One thing is clear: the RIA sector has matured. The latest indication: Broadridge Financial Solutions reports that for the first time, RIAs sell more in combined mutual fund and exchange traded fund (ETF) assets than the Big Four brokerages, known as the “wirehouses”.

That is why the Financial Times is publishing this inaugural edition of the FT 300 Top Registered Investment Advisers, providing a snapshot of the best advisers to be found across the US.

The team at the Financial Times’s sister publication, Ignites Distribution Research, set a minimum standard for RIA firms of $300m in assets under management (AUM), and then invited more than 2,000 qualified firms to apply for consideration.

The panel used a combination of the firms’ self-reported data, regulatory disclosures and its own research to score the candidates on attributes including AUM, AUM growth rate and compliance. The methodology is explained in an article published with the list of 300.

Size is a key indicator of quality, in that bad firms rarely continue to attract and retain clients. But size alone did not determine which firms made our list. Some RIA groups were disqualified for having too many compliance problems. Advisers were also judged on how many years they had been in existence because long-established organisations more often offer the reliability and predictability that investors prize.

RIA practices were awarded bonus points for having adviser employees with any of the top industry certifications, including the CFA, CFP, CAIA and more. Advisers whose information is easily accessible online were also awarded small bonuses because such transparency should be the norm in 2014.

In addition, the list is presented as a grouping of 300. There is no attempt to rank the advisers from 1 to 300, because no method is precise enough to separate the 200th-best adviser from, say, the 201st. Dozens of high-quality advisers just missed the list this year, edged out by peers with slightly better profiles – sometimes the difference was a few more years of experience or a slightly more impressive growth rate.

In a field of outstanding financial professionals, the FT 300 should be considered a list of truly exceptional adviser firms. It is organised state by state and the states with higher populations, and higher concentrations of wealth, understandably feature more advisers.

We wound up with advisers from 38 states plus Washington, DC, a decent amount of geographic diversity, given that there was no mandate to include every state. It is not surprising that New York City, a locus of wealth, has the single biggest concentration of FT 300 member firms, represented by 27 RIAs – more than double any other municipality. However, geography matters less these days, as more than a quarter of the FT 300 firms have offices in multiple locations (and often across multiple states).

So, after running the numbers, what does our list of 300 look like? The FT 300 is an elite group of RIA firms. The “average” firm on the list has been in existence for 24 years and manages $2.8bn. Similarly, the average FT 300 practice saw its assets under management rise 23 percent in 2013. One out of five practices has been advising clients for more than 30 years.

In keeping with the present trend towards specialisation in wealth management, about 89 percent of the FT 300 work in teams. Of those, the median team has six professionals who provide investment advisory services. Nearly two-thirds of the assets managed are in “discretionary” accounts, meaning the advisers have full control of how the assets are managed.

While the FT 300 leans towards large, it is diverse. Some practices provide high-end family office services, some cater to entrepreneurs or corporate executives, some offer tax preparation and some focus especially on baby boomers and retirees.

We aimed to provide a picture of leading financial advisers that would be good enough for the educated and discerning readers of the Financial Times. It is not a comprehensive list.

Yet for anyone seeking what a top RIA firm looks like, the FT 300 is as good a model as one can find.

— Loren Fox, Financial Times Special Report
 

Read the complete Report.