Jon Beatty uses his Schwab IMPACT coming out party to let RIAs know he is anti-disruption, and to expect the RIA industry to decelerate, after 10 crazy years of growth

If it ain't broke, why fix it?

That's the takeaway from Jon Beatty at the Schwab IMPACT 2024 conference. Beatty, who took over from Bernie Clark as director of Schwab Advisor Services, provided an overview of how the RIA custodian will roll for the next 10 years. See: Bernie Clark, renowned in RIA circles, is the highest-profile executive to leave in a Schwab shake out of veteran talent, but only after his 'unmatched' feat -- adding nearly 9,000 RIAs and $4 trillion in assets to Schwab custody

Schwab plans to maintain its status quo business model while trying to corner a big chunk of the $11.5 trillion (by its own estimate) that's expected to arrive at RIAs by 2034.

“The last thing advisors want is disruption and unexpected change, right?” he said in a Citywire interview.

“We are operating at great efficiency. And we feel like we have our business model right where it needs to be in terms of how we operate with advisors.”

The conference wasn't the only source of news. Robinhood, the online broker-dealer, stole some thunder by announcing its entry into RIA custody by acquiring TradePMR. See: TradePMR sale to Robinhood sends ripples through the RIA industry both for its potential to rival big custodians and for the discount broker's potential clash with fiduciary culture

Beatty's reaction to the merger in a four-minute interview with CNBC anchor Scott Wapner was less about the deal and more about Schwab's giant industry footprint – which seemed to be an answer in itself. 

He said an RIA custodian needs scale, breadth, and commitment. He noted that Schwab has $4.5 trillion in custody out of $9 trillion of RIA assets industrywide. 

Schwab added net new assets of $51 billion in just the previous quarter. Though $51 billion only represents a 1.11% gain, Beatty made his point. 

Slowing asset growth

TradePMR is simply a mouse that roared, he implied.   

The custodian has grown to $42 billion of RIA assets since its 1998 founding – and may even decline in size as it rebuilds post-merger, according to Jason Wenk, CEO of rival custodian Altruist. See: Jason Wenk sees light at the end of the Robinhood/TradePMR merger, but not before a dark tunnel that could see 40% of RIAs bolt

Beatty projected that the value of industrywide assets under RIA management (AUM) will hit $20 trillion by 2034, an increase of 235.3%, up from $8.5 trillion today. If accurate, this projection also represents a marked decline of fifty percentage points on the prior decade's growth.

Yet it's better to be safe than sorry when making projections – especially when they rely so heavily on market gains, according to Andrew Besheer, principal of Albany, NY consultancy, Besheer & Associates.

"There’s reasonableness and conservatism to Schwab’s estimate, [but] it seems fair to presume that the massive growth in the space – partly fueled by significant stretches of bull market for the underlying assets – may slow," he says, via email.

“It's always better when you're in the shoes of a public company or industry leader to be a bit more conservative about your predictions, then over-deliver, which I think they've positioned themselves well to achieve," he adds.

Beatty did not say why he expects the RIA industry growth rate to decline, and Schwab did not respond to a request for comment.

Rising opportunity 

Between year-end 2013 and 2024, the RIA market grew a compounded average of 11% annually, or 283.3% overall, to $8.5 trillion from $3 trillion, according to data obtained from Boston consultancy and research shop Cerulli Associates.

Match that feat, and RIAs will manage a combined $24.1 trillion by year-end 2034, or 21.1% more than Beatty's forecast.

Not only is RIA AUM likely to grow over the next decade, but the RIA industry’s addressable share of the wealth management industry is likely to grow, too, from its current level of 25% to 27%, to 32% by 2028. See: RIA roll-ups sharpen knives for next $3 trillion.

"We project by 2028 [that RIA market share will be] about 32%, and just by this year’s numbers, excluding market growth, that [represents] just over $10 trillion," says Stephen Caruso, Cerulli associate director for wealth management, via email.

“We do expect the RIA market to grow about 5% by 2028, and I’m confident in those numbers. Flows are still strong, and [the market] is not only relying on breakaways; [there’s new] younger advisors, and positive tailwinds,” he explains.

Also, “with market growth of, say, between 7% and 12% [annually] ... there’s a significant market opportunity if we experience broad-based economic growth,” he adds.

Betting against the bank

At current asset levels, market share growth of 5% to 7% annually would, indeed, boost the value of the RIA industry's overall AUM to between $10 trillion and $11 trillion, and if the last 10 years of industry and market performance are replicated in the next decade, it could lift RIA AUM above $28 trillion.

The number of RIAs has also climbed over the past decade, albeit at a slower clip, up 16.9% to 18,700 today from 16,000 at year-end 2023, according to Cerulli data.

Yet betting against Beatty's forecast carries a degree of peril for analysts since Schwab's data often comes straight from the RIA horse's mouth. 

As the new head of Schwab Advisor Services, Beatty has that data on tap. See: Jon Beatty takes the Bernie Clark spot.

Beatty, who has spent almost 28 years at Schwab, took over Schwab Advisor Services last July, after five-and-a-half years as the firm's chief operating officer.

As the largest RIA custodian in the market, Schwab has a view on the inner workings of around one in four RIAs custodying at least some of the assets managed by 15,000 firms, or 80% of the RIAs operating today, according to company statements.

Maximizing certainty

Cerulli also declined to provide a counter-estimate to Beatty’s $20 trillion number.

"I wouldn’t want to put an optimistic or conservative number against [Beatty’s] figure,” says Caruso.

It's smart not to because RIAs are likely to face greater headwinds in the next decade. Private equity and venture capital funds will want to cash in their RIA investments, according to Besheer.

“Crystal balls are hard, but I’d bet that Schwab has got a pretty strong analytic baseline to underpin their [estimate]," he says.

"Somewhere along the line, there's [also] going to be an unwinding … [so] there will be a bit of uncertainty and some turbulence.

But Beatty promises to keep maximizing certainty.

"In the last five years, [Bernie Clark and I] made all the decisions about the business together so that when the transition happened, there would be continuity and consistency in terms of how we were running the business, he told Citywire.

“And that’s what we think is most important in our relationship with advisors.”