Business models in the wealth management industry are changing, and a Fidelity Investments executive, an avid skier, has seen a similar evolution before.
Scott Slater, a vice president of Practice Management and Consulting within Fidelity Clearing and Custody Solutions, likened what is occurring in wealth management to the ski resort business during a presentation at the firm’s Inside Track conference for advisors in New York City on Tuesday.
Ten years ago, Vail Resorts began acquiring other ski resorts and offering the Epic Pass, a ticket that included admission to all of their properties, rather than charging admission to each one individually. It was a novel idea, as most ski resorts are independently owned and operated. The move has changed the industry.
Largely because of Epic Pass, Vail has continued to grow and benefit from scale. In the last 6 years, it’s invested more than $1.2 billion in its portfolio, which includes 14 mountain resorts.
Vail owns real estate on the slopes and nearby lodges and restaurants. It has improved the infrastructure at its resorts, built an award-winning mobile app and offers perks to passholders who can save money in the end on passes and services they were likely to purchase anyways. In 2017, the company expected to sell 740,000 Epic Passes, which go for as much as $949 for one adult per season.
As a result, snow sport enthusiasts are choosing Vail’s network of resorts over independent ones, and other companies have taken note of Vail’s success and created similar business models.
If they can’t beat the companies that are consolidating properties, independent resorts are joining them. The same thing is happening in wealth management. A little innovation and capital has changed the two once sleepy industries into something else entirely, Slater said.
“The value [proposition] of those small independent ski areas has got to change,” Slater said, and smaller registered investment advisors will need to do the same. He doesn’t think small advisory firms are going away entirely, but it’s getting harder for them to compete. “The independent model is not immune to changes.”
Ron Carson, the founder and CEO of Carson Group, told WealthManagement.com at Tuesday’s conference that even RIAs managing well over $1 billion are finding it challenging to scale their business and offer their advisors and clients what companies like his can. Last week, Carson Group Partners said another 12 wealth management firms advising on $1.2 billion had partnered with it from July through September. The firm adjusted its expected assets under management to more than $10 billion before 2019, up from $9 billion in the second quarter.
A 2017 report by Cerulli Associates found there are 687 retail-focused RIAs with at least $1 billion in client AUM. Those firms account for only 3.8 percent of RIAs, yet they now collectively oversee 60 percent of the channel’s assets, or $2.4 trillion. The majority of other firms in the channel (72 percent) are much smaller, with less than $100 million in assets on average.
But RIAs shouldn’t view changes in the industry as a warning that they need to acquire others or be acquired immediately. Slater stressed that engaging mergers and acquisitions is not a strategy in itself and only the means to execute a plan. Through that lens, RIAs should think hard about their future and once they decide what that looks like, prepare as best they can, Slater said.
