There are nearly 60,000 financial advisors working as part ofindependent RIA firms and hybrid RIAs, accordingto Cerulli Associates. That's roughly double thelevel of participation about 10 years ago — with client assets atthese firms growing nearly 9% per year during the past decade, asof year-end 2016.

A keen observer and facilitator of this growth spurt is MarkTibergien, who joined Pershing Advisor Solutions (part ofBNY Mellon) as its CEO in 2007. Over the past decade and earlier —as principal at Moss Adams and in prior roles — he has interactedwith hundreds of independent registered investment advisors, broker-dealers,investment managers and other financial-services groups.

This June, readers of ThinkAdvisor's Investment Advisorpublication said Tibergien is the most influentialperson in the financial services business and theadvisory space, with almost half of respondents voting for thismagazine's long-time columnist in the IA 25. (He beat out WarrenBuffett.)

The executive is a proud supporter of the Foundation forFinancial Planning, the International Association for FinancialPlanning and the SIFMA Foundation; he was recently named to theAdvisory Council for the Center for Financial Planning, which aimsto promote diversity in the advisory profession.

As the RIA model continues to chargeahead, Investment Advisor spoke with him abouthow the business of advice is changing and what lies in store forRIAs and advisors.

Can you describe the growth of the RIA channel bothacross the industry and for Pershing specifically?

The business of financial advice is going through a significantchange, as financial professionals continue to move away from beingprofessional sellers to being professional buyers, from beingproduct advocates to being client advocates, from a commissionstructure to a fee structure and overall, away from a suitabilitystandard toward a fiduciary standard.

Most of this is the shift from brokerage to advice. The modelhas been in place since at least the Securities Act of 1940, but itwasn't until the 1970s and ’80s when the financial-planningmovement started to take root that the current model wasconceived.

Up until then, most RIAs were pure money managers investing instocks and bonds on behalf of institutional clients and wealthypeople. Typically, these RIAs would trade with the big brokeragefirms in return for research, something we call “soft dollar.”

Charles Schwab conceived the idea of offering his discountbrokerage platform to retail-oriented RIAs to execute transactionsand hold assets. Banks were the primary custodian, but Schwab ledthe effort to disintermediate them on this service as well.

Now there are about 30 firms that offer custodial and executionservices to RIAs from boutique providers such as ShareholdersService Group to the big four that include Schwab, Fidelity, TDAmeritrade and Pershing.

The RIA model now represents almost a quarter of the assetsmanaged by financial professionals in the U.S. According to CerulliAssociates, the independent RIA and hybrid RIA channels grewmarketshare of advisor-managed assets from 14.8% in 2006 to 22.7%in 2016. At the end of 2015, there were 17,245 RIA firms registeredin the U.S. That's up from just over 12,000 in 2005. In 2015 alone,648 new RIA firms were created, mostly breakaway firms fromwirehouse brokers and private banks as well as transitions from theIBD channel.

Pershing's growth has mirrored the industry's growth, perhaps[moving] even a bit faster. As a company, we serve RIAs in multipleways. First, through Advisor Solutions we focus on RIA firms whotend to be much larger than those at our competitors. As anexample, the average RIA we onboarded last year had assets of $750million. Our assets under custody in this channel grew from $30billion six years ago to $200 billion today, and the growth in thisbusiness continues to compound at a double-digit rate.

We also have a growing base of corporate RIAs. This is a biguntold story but significant for the industry. In order to respondto the movement away from transactional business, broker-dealersinvested heavily in the corporate RIA model under which theiradvisors would register as investment advisor representatives(Series 65). This allowed their advisors to do financial planningand act as fiduciaries when consulting with their clients.

This was a great solution for financial professionals to set uptheir practice as advisory rather than brokerage. As the largestsecurities-clearing firm in terms of the number of broker-dealerclients in the U.S., we have seen dramatic growth in corporate RIAassets, growing from 5% of our total in 2008 to 47% of our totalassets under custody today. Currently, Pershing custodies just over$650 billion of RIA assets and that trend continues unabated.

Can you comment on what factors have been driving thisgrowth and what has been interesting to you as you have observedthis trend over the years?

Several factors are driving this growth. The first catalyst wasthe creation of financial-planning designations — CFP and ChFC.This helped individuals move away from being investment-forwardproduct salespeople to planning-forward client advocates.

Second, the rapid growth in the independent contractorbroker-dealer model away from employee-oriented brokerage firmsallowed for a more open approach to doing business and gave way toa more entrepreneurial mindset among financial professionals.

Third, their supervising broker-dealer required the unbundlingof services where advisors no longer had to limit themselves toproprietary investment products, technology or even custody. Now,RIAs can shop for the best set of solutions that align with theirbusiness model and their clients. There are literally scores ofproviders eager to serve them, which puts them much in demand.

The fourth catalyst was the overt promotion of the fiduciarystandard by organizations such as the Financial PlanningAssociation (FPA) and the National Association of PersonalFinancial Advisors (NAPFA), which caused many in the industry tothink more clearly about how they would like to be perceived. Thishas resulted in more than 100 universities in the U.S. conferringdegrees in financial planning, which is introducing thousands ofnew students into the advisory side of the business every year.

The most recent catalyst was the reputational damage that biginvestment banks and brokerage firms suffered following the 2008market collapse. The fastest growth in the RIA segment is comingfrom very large breakaway teams like 6 Meridian (Wichita), SummitTrail (New York, Chicago, San Francisco) and Halite (Columbus,Ohio), who are setting new firms up with billions of dollars ofassets under management.

Has that growth surprised you — why not? And in whatways?

As I said, the RIA movement is not a recent phenomenon. Momentumhas been building for 30 years or so. Now that consumers arebeginning to appreciate the difference between an advisor and abroker, and that financial professionals want to be seen as clientadvocates versus product advocates, the growth is continuing togain momentum.

That's not to say brokers don't add value or aren't acting inthe client's best interest. But the shift to a more professionalstandard of conduct just puts an exclamation point on the way thesefolks want to practice.

I think what surprises me, and sometimes annoys me, is that theindustry and regulators allow for a confusion in terminologybetween broker and advisor. Consumers have the right to know whattype of practitioner they are dealing with.

If I have a sore back, I want to know if I am seeking the helpof a massage therapist or an orthopedic specialist. If I’m seekinghelp with my taxes, I want to know if I’m dealing with an EnrolledAgent or a CPA. If I’m trying to buy a new condominium, I want toknow if I’m dealing with an independent real estate agent or arepresentative of the building I’m interested in.

I don't mean to diminish those who deliver basic services, butif my expectation is that I’m dealing with a professional who mustadhere to certain standards, then I’d like evidence of that intheir disclosures and their relationship with me. If the consumerwants to be transactional in their relationship, this should alsobe clear to them.

You’ve said this trend started way before DOL'sfiduciary rule. Can you elaborate on this view?

The DOL [Conflict of Interest] Rule mandates that anyoneadvising on retirement plans adhere to a fiduciary standard asdefined by [DOL]. This focus is only on a certain type of accountand not on the entire relationship. On the other hand, theSecurities Act of 1940 stated that those acting as advisors mustadhere to a fiduciary standard in all of their dealings.

In the case of the DOL, it's a rule with the threat oflitigation. In the case of the RIA fiduciary standard, it's aprinciple or standard of conduct, and is what those who areestablished as RIAs understand they must adhere to in their totalrelationship with the client.

Clearly, the growth of the RIA segment of the business has beenexponential for many years before [DOL's rule] was even conceived.I perceive that the regulators and their advocates felt that byrequiring brokers to step up their standard of conduct, they wouldput all clients on a level playing field regardless of what type offinancial professional they worked with.

I’m sure there are many within brokerage environments who aresaying if they have to adhere to new rules, they might as well goall the way to RIA, but this has not yet been a boost to the RIAside of the business. Meanwhile, the DOL rule is forcingbroker-dealers to invest more in their approach to serving clients,including more robust corporate RIA platforms, more relevanttechnology and a stronger focus on cost and benefit.

Would you say that the DOL fiduciary rule is good forRIAs and growth of the channel? And where do you see DOL goinggiven the present political climate?

DOL may be the final shove that some registered reps need tobecome RIA only. At some point, the complexity of acting in thebest interest [of clients] on certain types of accounts but not onothers becomes too risky from a compliance and litigationstandpoint and too onerous from a management standpoint. But thereare other factors likely to drive the RIA movement.

What does the growth of the RIA channel mean forindependent broker-dealers, employee BDs and otherplayers?

As this industry continues to evolve, I think morebroker-dealers will view themselves as financial service firms, notproduct distribution companies. There are 1,400 fewerbroker-dealers since 2008, and we are aware of at least 20broker-dealers filing BDWs (broker-dealer withdrawals) to go RIAonly.

But I think it's a mistake to blame this stress on the growth inRIAs. The real pressure is coming from how consumers want tointeract with their financial professionals, how technology ischanging the advisor-client dynamic and how regulators are makingit more difficult to operate profitably.

Regardless of the business model, financial professionals of allstripes need to be clear on who their optimal client is, what theirclient experience will be, how they are structured to support thisexperience and how they manage to profitability. If I were runninga broker-dealer today, I would try to answer the key strategicquestions around why I exist in financial services, regardless ofwhich regulatory structure I operate under.

What does all this change mean for clients?

Clients clearly benefit from greater transparency, a lower costof doing business and higher standards of conduct. There still istoo much confusion as to what type of practitioner they are dealingwith, so the onus is on them to do their homework.

But now, consumers have a clear choice.

On the downside, most RIA firms are small businesses. They havelimited resources, limited capacity and in many cases, limitedcapability. Working with a lifestyle practitioner without acommand-and-control structure can be as risky to consumers asworking with a pure-product advocate. RIAs are not audited byregulators frequently, and there is not a lot of funding to changethis.

Consumers still need to be careful not to accept allpractitioners as equal regardless of their business model or theirprofessional designations. Deciding to work with a fiduciary is nota panacea to one's financial challenges. It's a great thresholdquestion, but not the final question.

What does all this change mean for advisorsoverall?

For young people contemplating a career, the business offinancial advice is very compelling: It's intellectuallystimulating, you have a degree of independence, you arewell-rewarded financially and you can profoundly impact the livesof others. Plus, there is an oversupply of clients seekingadvice.

For others trying to build a business with transferable value,there is nowhere to go but up. There will be normal businesspressures, but the opportunity for meaningful growth in an industrywith so much potential is truly compelling. There is a reason whyso much private-equity money is coming into this space.

What's next for the RIA business?

I am hardly an oracle, but I do see some patterns from otherprofessions such as accounting, law and engineering that couldapply here. There is a desire for many firms to get to criticalmass. There is a need to create a better process for developing andrecruiting talent. Most firms are limited in their growth becauseof a lack of human capacity to serve clients.

As a result, I expect to see more large firms emerge. It wouldnot surprise me to see 10 to 12 national RIA firms and 50 to 60super-regional firms in the next 10 years. I think we will also seea growth in local-market dominators as firms begin toconsolidate.

How will new technologies like robo-advisors, AI, socialmedia and mobile tech affect RIA growth?

I don't see digital technology displacing advisors. I do seethis technology enhancing the advisory experience. In a sense,mutual funds [and] then ETFs were a form of robo back in the day.Each innovation, whether in this business or not, ratchets upclient expectations about how [advisors] will interact withyou.

One challenge is how the regulators will keep up withtechnology. I’m not sure that their original intent anticipated howsocial media, smartphones and the internet would transform howpeople interact.

What does it mean for consolidation, and what is thefuture of large vs. small advisory firms?

There will always be lifestyle practices, but consolidation isinevitable. Two models are unfolding: private-equity-backed roll-upfirms seeking a financial play or a liquidity event; and strategicacquirers, existing owner-operated firms that are attempting togrow into large regional or national firms. My next column in theNovember issue of Investment Advisor will getinto this extensively.

When you look at the RIA channel's growth, whatpredictions can you make about it — say 10 and 20 yearsout?

I think less about it being the “RIA channel” and more about anoperating model for how financial services will conduct businessgoing forward.

There will always be transactional firms because many consumersprefer it. Discount brokers and the like seem to still attract acertain type of client. As I said before, I think broker-dealerswill continue to adapt to this orientation, and some of them couldemerge as the national or super-regional firms that I predict willunfold.

However, this segment has its challenges:

• There is an acute talent shortage, and there are very few firmsbig enough to become known as the employer of choice with apeople-development plan.

• RIAs have not really experienced any price compression, butother providers have; this dynamic will soon change.

• It is difficult to tell the difference between advisory firms,so distinct branding will be required for those committed togrowth.

• Regulatory standards for establishing and maintaining an RIAwill also likely be raised, which will put additional pressure onthe owners of these firms.

Are there any more thoughts to share on the topic orrelated industry trends?

The shift to advice away from brokerage is not unique to theU.S., even if the term “RIA” is uniquely American. We see thegrowth in this model occurring in the U.K., the Netherlands,Singapore and Australia. We see rumblings in India and Japan andthroughout Europe.

The question is whether the movement will occur as it has in theU.S. with a profession fueled by entrepreneurs rather than giantorganizations.

I do have a concern that the organizations upon which RIAs aredependent for technology, custody and investment management haveall experienced serious margin compression. At the same time, RIAsare demanding more from their providers.

At some point, there will be a reckoning that could change thisdynamic and make it harder for the entrepreneurial firms to ride onthe coattails of their larger, well-funded providers. I think thisis a scenario worth watching.