RIAs Squeezed as Volatility, Inflation Dampen Asset Growth: Fidelity

Wealth management firms brought in considerably fewer assets last year than they have in recent history: Organic asset growth was under 4% in 2022 — down from a high of 8.2% in 2021, according to Fidelity Investments’ 2023 RIA Benchmarking Survey. 

Independent registered investment advisors remain challenged by inflation and market volatility, the research found. These factors resulted in a nearly 40% decline in assets under management from both new and existing clients, which drove the slowdown in organic asset growth. 

While firms tried to offset the impact of market headwinds on profitability by focusing on bringing on new clients, most of them acquired smaller clients, according to Fidelity.

Assets from new clients only contributed to a third of organic growth activity and did not not translate to higher AUM. Instead, each advisor ended up serving more clients on average, putting a strain on staffing with little to no impact on profitability, the research showed. 

Fee Discounting

The size and frequency of fee discounting also increased in 2022, with 70% of firms with less than $1 billion AUM offering discounts. Among firms with more than $1 billion AUM, 89% offered discounts. 

However, fee schedules remained flat, which further impacted organic growth and profitability, Fidelity found. The firm recommended RIAs review their books of business and rethink offerings and service based on client segmentation. 

“It’s important for firm leaders to continue prioritizing ways to enhance their business model, especially during times of market uncertainty,” Anand Sekhar, Fidelity Institutional’s vice president of practice management and consulting, said in a statement.