Low-cost index funds and hedge fund-like structures are expected to win more market share in the next three to five years as RIAs gain at the expense of wirehouses, claims Tiburon Strategic Advisors.

Low-cost index products, including exchange traded funds, and hedge funds and hedge fund-like structures, including those in mutual funds, will gain a big chunk of market share over the next three to five years, according to Chip Roame, managing director of Tiburon Strategic Advisors.

Both categories should each grab about 25 per cent of  a nearly $20 trillion market by 2015, up from approximately seven per cent for low cost index products and nine per cent for hedge funds currently, Roame predicted while addressing the Tiburon CEO Summit in New York.

Products with guaranteed income streams such as annuities may also be poised for big gains, he added. But the fate of that product category is more uncertain, and may depend on political support, Roame said.

“Annuities will either grow wildly or once again be the next big thing that wasn’t,” he said, adding that he expected the independent advisor channel to maintain its rapid growth.

“RIAs are the fastest growing channel, followed by discount brokers,” he said. “We’re seeing RIAs overtake wirehouses in front of our eyes.”

In fact, Roame described the wirehouse business model as “not sustainable.”

“It seems to be an old-school model of bribing brokers to leave one firm and bribing them to stay with another,” he said. “The wirehouses are not growing, they are stagnating.”

Low-cost index funds such as ETFs and hedge fund "lite" products have grown in use in recent years. With ETFs, for instance, they are increasingly popular with advisors who charge a fee rather than take a commission since they enable them to efficiently build discretionary portfolios for clients at low cost, a process seen in North America and also in countries such as the UK