The financial advisory industry is undergoing a seismic transformation as the lines between the Independent Broker-Dealer (IBD) and Registered Investment Advisor (RIA) models continue to blur.
Historically, these two models have operated on distinct principles: IBDs typically emphasized transactional relationships and commission-based compensation, while RIAs focused on providing holistic, fiduciary-driven advice with a fee-based structure. However, market forces, regulatory shifts, technological innovation, and evolving client expectations are compelling advisors and firms to reimagine their business models.
This convergence represents more than just a shift in business practices – it is a response to the growing demand for transparency, customization, and value in financial advice. As advisory models blend together, advisors are uniquely positioned to leverage the strengths of both IBD and RIA frameworks, ultimately creating a more client-centered approach to wealth management.
In this article, we explore the factors driving this convergence, the opportunities it presents, and the challenges firms must navigate to thrive in this evolving landscape.
While both models have carved out successful niches within the independent financial advice space and have historically outpaced traditional wirehouses in terms of growth and margin, RIAs still held an advantage over their IBD counterparts.
Slower AUM growth and declining advisor headcounts at IBDs, coupled with shifts in the competitive landscape, ongoing regulatory changes, technology advancements, and elevated client expectations are serving as the main catalysts for IBDs to more closely align their practices with the fiduciary principles that have long been the cornerstone of the RIA model. Many operate ostensibly as IBDs but now hold significant portions of their clients’ assets in their advisory business with very little differentiation from an RIA.
To illustrate the scale of the challenges IBDs are facing, a Charles Schwab RIA benchmarking study showed RIA’s have consistently grown AUM at 13.5% 5-year CAGR (and 17.9% just in 2023), driven by trusted advisor-client relationships and the appeal of the independent model.1 On the other hand, an October 2023 Cerulli study indicates that IBDs have grown their AUM at 6.6% - 8.4% 5-year CAGRs, depending on firm size.2
This coincides with a 26% growth differential in the number of advisor practices within the IBD channel between 2017 and 2022 compared to RIAs (IBDs: -13%; RIAs: +13%).3 Increased advisor expectations and additional regulatory pressures have been moderating profit margins at IBDs creating a particularly challenging environment. Increased costs, lower advisor productivity, and commoditized brokerage models are only adding to their struggles.
The path to convergence has not been an overnight phenomenon. Instead, there has been a slow burn over a number of years with sporadic periods of event-driven acceleration. For instance, the implementation of additional rules and regulations that put pressure on IBDs to adopt more fiduciary-like responsibilities, such as Reg BI in 2020. Additionally, clients have developed higher expectations and are demanding greater transparency in fees, personalized advice, and a holistic approach to financial planning which more closely aligns with the core values of the traditional RIA model.
Growing popularity of the RIA advisory approach and the influx of private equity investments into wealth management, largely through M&A, have created a dynamic and competitive market. Private equity firms, recognizing the potential for returns in the wealth management sector, are injecting capital into both RIAs and IBDs, driving consolidation and accelerating innovation.
Likewise, RIAs are acquiring smaller firms to create scaled platforms and IBDs are buying RIAs to capture their fee-based advisors. Acquired firms typically follow the lead of the acquirer so these M&A transactions are accelerating the IBD to RIA model convergence. Adding fuel to this trend are increased wealth management transaction volumes which rose 14% in 2024 compared to 2023.4 The market is still considered highly fragmented which creates attractive consolidation opportunities and, with more buyers interested in dealmaking, there is nothing to suggest that quality firms will see a slowdown in demand to buy them, likely at elevated valuations. This also lends to conditions where larger and larger IBDs will be competing with larger and larger RIAs that increasingly look very similar in their strategic approach.
The convergence of IBD and RIA models is reshaping the advisory landscape, with the fight for advisors having an oversized impact that remains a key area of focus.
As noted above, IBDs had been losing the battle against RIAs and seeing advisors’ defect in far larger numbers while, at the same time, the overall pool is shrinking due to a retirement imbalance. Increasing the number of productive advisors is an important factor driving growth outside of M&A so, for IBDs, reversing this losing trend is paramount. IBDs recognize the preference for the RIA model and are advancing their fee-based advisory platforms to attract and retain top talent while RIAs are taking steps such as expanding their product offering (e.g. insurance, alternative assets) to provide advisors with the ‘best fit’ for their goals and client needs.
Additionally, both RIAs and IBDs have strategically lowered platform fees and increased financial incentives to attract advisors. In line with this approach, some IBDs have gone as far as offering custodial services, investment platforms, and back-office support at lower costs to match the appeal of RIA custodians. As a result, both models will continue to be under increased pressure to evolve, likely in very similar directions, in order to remain attractive to advisors.
The high levels of competition that are pushing IBDs and RIAs to refine their offerings and find ways to stand out is turning into a race for innovation. Advanced technology is not only a driving force of change and convergence but also allows firms to scale and specialize. Some IBDs have more of a hill to climb with wholesale reforms to their legacy models to incorporate fee-based services and expanded financial planning capabilities.
On the other hand, RIAs are already the ‘target model’ and have much of the base functionality in place, providing more room to explore new ways to differentiate themselves beyond the fiduciary standard which is becoming less of a unique selling proposition. Additionally, technology is another facet of platform attractiveness to advisors who, at a minimum, expect seamless integration of portfolio management, CRM, and financial planning tools. Some offerings take it up a level, providing turnkey solutions that focus on cost and efficiency while reducing the burdens of registration, ongoing compliance, marketing, and other services.5
Competition has led to convergence, promoting a shared philosophy of leading with advice instead of a commission-based, product-oriented model. This shift has ultimately minimized the perceived contrasts between an RIA and an IBD. Clients are less concerned with what has become more of a regulatory distinction than an actual difference as long as they receive high-quality, planning-based advice.
The attractive economics and popularity of RIAs with advisors and clients alike will continue to push convergence through M&A and strategy transition to implement a reimagined business model.
The firms most likely to succeed will compete on efficiency and scale, or by carving out an appealing value proposition focusing on niche specializations, sophisticated planning services, and superior client experience. There is no sign of this trend slowing down, meaning IBDs will continue to adapt to the RIA way of doing business while RIAs endeavor to stay one step ahead as the two styles march in unison.
Firms that wish to enter the space, grow, or just survive will be confronted with strategic choices based on the new industry realities. Increasingly, we expect broker dealers to continue building a perception in the marketplace that they are a holistic wealth platform instead of identifying either as an IBD or an RIA. As further convergence between these models is expected to result in a closer alignment of strategic objectives, firms will have to continue adapting and optimizing their market positioning while strengthening their value proposition to remain competitive.
References
1 https://content.schwab.com/web/retail/public/about-schwab/2024-Charles-Schwab-RIA-Benchmarking-Study.pdf
2 https://www.cerulli.com/press-releases/10-largest-broker-dealers-control-58-of-retail-assets
3 https://www.thewealthadvisor.com/article/advisors-are-migrating-wirehouses-and-ibds-rias
4 https://www.investmentnews.com/rias/its-a-sellers-market-for-rias-in-2025-report-says/258991
5 https://www.thinkadvisor.com/2025/01/15/new-ria-platform-promises-better-compliance-and-lower-advisor-costs/