According to a new report from Broadridge Financial Solutions (NYSE: BR), assets for broker-dealers are expected to grow at a greater rate than those for either registered investment advisors or wirehouses through 2027.
The latest research from the firm projects the organic compound annual growth rate (CAGR) in relation to U.S. retail active, advisor-sold AUM to reach 5.5% through 2027. This is greater than RIAs at 3.8%, wirehouses at 2.4%, and private banks, trust and bank channels which, collectively, totaled 2.0%. Additionally, broker-dealers accounted for 39% of active, advisor-sold AUM for U.S. retail, again greater than 23% of wirehouses, 18% of RIAs, and 20% of the other private banks, trust and bank channels.
U.S. advisor-sold assets represent a substantial opportunity for all distributors and asset managers with the $28 trillion in U.S. retail creating a larger asset pool than U.S. institutional at $18 trillion or any other global region.
Despite this growth in assets, U.S. distributors and asset managers will need to navigate through a variety of disruptive trends. According to the report, 43% of U.S. asset managers reported greater personalization as their greatest near-term challenge, followed closely by private markets at 40%. These disruptions were reportedly greater than consolidation (33%), regulation (29%) and disintermediation (19%).
The Broadridge report claims a trend of heterogeneity in the current marketplace: “Even as recently as four years ago, all generations invested most of their liquid variable-return portfolios in mutual funds. Today, however, each generation’s mix of mutual funds, exchange-traded funds (ETFs), and individual stocks differs from the others, with younger investors rapidly shifting away from collective schemes.” Unlike Baby Boomers, who placed around 37% of their assets in equities, Gen Z is placing about 42%.
Furthermore, private markets and alternatives have presented a disruption to asset managers. Use of alternatives grew from 56% to 67% from 2021 to 2022, with 69% of bank/broker-dealer advisors stating they used alternative investments. 64% of RIAs reported using alternatives, along with 82% of wirehouses. The company explained that this increased demand is driven by a greater comfort with alternative investments, advisors’ desire to differentiate their services, and expanded access to more sophisticated investments within the advisors’ platforms.