What We’re Reading on the RIA Industry

Industry Trends

Much of the sector’s recent press has focused on succession planning and M&A trends, so we’ve highlighted some of the more salient pieces on these topics and a few others that are making news in the asset and wealth management industries.

Why Building a Multibillion Dollar Firm is Not for the Faint of Heart

by Charles Paikert, Financial Planning

Growing an advisory practice into an enterprise with value beyond its founders is tough work.  Transitioning to a sustainable enterprise means hiring the right group of people to gradually assume management roles, but many firms lack experience developing personnel internally.  Consequently, RIAs are increasingly making lateral hires or expanding through M&A.

Mark Tibergien and Dan Seivert Listen Up!  Dave Welling Explains Why Rising Private Equity Involvement in the RIA Business is Flat-Out Great

by David Welling, RIABiz (guest author)

Many RIA industry commentators have decried PE firms investing in RIAs as little more than short-sighted financial engineers.  In fact, many RIAs we’ve worked with wear employee ownership and lack of outside capital as a badge of honor.  However, David Welling (CEO of Mercer Advisors, no relation) argues that PE capital may actually be a great thing for the industry and its clients.  To be fair, Welling’s own firm has been PE-owned for 10 years, but nevertheless, he provides an interesting perspective on PE capital and its potential impact on growth and succession planning for RIAs.

The Importance of Having Culture

by James J. Green, ThinkAdvisor

In our experience, firm culture is a key factor that contributes to an RIA’s success.  Culture is not one-size-fits-all, and there’s certainly more than one way to build a culture that “works.”  However, what successful firms tend to have in common is that they are deliberate about building a culture that values great people and differentiates the firm from the competition.  This article profiles registered rep Steve Rudolph and his IBD firm HW Financial Advisors, and how being deliberate about great culture has helped the firm grow to $600 million AUM with six advisors.

Merrill Lynch Cuts Broker Pay

by Lisa Beilfuss, WSJ

Merrill Lynch is cutting broker pay beginning in January.  Merrill’s recently-announced compensation plan for 2019 includes a 3% penalty on brokerage and investment advisory production below $1.6 million annually.  Many of Merrill’s 17,000 advisors see the move as an effort to promote cross-selling bank products, fees from which are not penalized under the new plan.

Schwab Studies Zero-Fee Mutual Funds in Wake of Fidelity’s Zero-Fee Mutual Fund Launch, but Schwab CEO Walt Bettinger Still Wonders ‘What’s the Point?’

by Brooke Southall, RIABiz

Asset managers are taking note after Fidelity won the race to the bottom by launching two zero fee index funds in August.  Schwab CEO Walt Bettinger revealed that the firm is vetting the idea of launching similar zero fee products at the firm’s Fall Business Update.

Wealth-Management Firms Battle Over Millennials

by Rob Curran, WSJ

Millennials’ financial assets are expected to grow to more than $11 trillion over the next 12 years.  Clearly, this demographic is increasingly important for the wealth management industry, but it is unclear how well RIAs will attract millennials’ assets in the face of stiff competition from fintech products.  On one hand, as millennials gain wealth and their financial lives become more complicated, they may gravitate to more traditional wealth management services.  On the other, fintech products that started with a narrow focus are quickly expanding their product offerings and capabilities to meet growing demand.

Top 6 Trends in Wealth Management: Chip Roame

by Janet Levaux, ThinkAdvisor

Some of these trends are no surprise – growing use of cost-conscious products, greater managed account assets, increasing RIA assets and number of RIAs, etc…  Perhaps more surprising is the persistent importance of baby boomers’ assets in the industry.  Despite the supposed battle for millennials’ assets, baby boomers’ assets are projected to grow from $26 trillion today (50%+ of the total) to $40.7 trillion in 2027 (40%+ of the total).

In summary, succession planning remains a major issue for asset and wealth managers, and will likely remain so as the ownership base ages.  For some “enterprise” firms, succession may be best handled internally.  For others, PE or PE-backed aggregators may provide a sensible solution.  For firms in the latter category, the same culture which makes those firms successful may be a barrier to raising outside capital.  To further complicate matters, the industry backdrop remains one of declining fees, evolving products, and a shifting client base.