The independent registered investment advisor space began as a small, nascent movement of financial advisors leaving the wirehouses. But over the last several years, it has become more professionalized, dominated by large, private equity-backed firms that have grown rapidly through mergers and acquisitions. What does this new environment mean for small RIAs?
During a discussion he led on the topic during the Future Proof Festival in Huntington Beach, Calif., Kevin Thompson, CEO and president of 9I Capital Group, a Fort Worth, Texas-based fee-only RIA with three employees overseeing some $33 million in AUM, said he’s afraid a wirehouse-like landscape will emerge in the next five years or so, with just four or five RIA conglomerates gobbling up smaller players.
Amid that backdrop, Chelsea Ransom-Cooper, Chief Financial Planning Officer, Zenith Wealth Partners, a Philadelphia-based RIA with offices in six markets and $82 million in AUM, said her firm is trying to stay competitive by leaning into their advisors and client relationships.
“When I see a lot of private equity-backed firms, and they’re growing these big conglomerates or aggregation tools, they’re really focusing on the technology, but they’re not actually focusing on the clients,” Ransom-Cooper said. “We really believe that if we can empower our advisors to have their own voice and lean into their zone of genius, we can be competitive because we have a competitive, incomparable culture that really allows them to serve people that inspired them to be in the position in the first place.”
She added that these private-equity-backed firms have a lot of money to lure advisors, making it more difficult for smaller firms to recruit talent. Ultimately, however, she said the model has limitations.
“It doesn’t make sense how they’re able to pay advisors this amount and then charge clients $100 to $200 a month,” she said. “I don’t really see the sustainability in it. But I understand why advisors may want to just try something different and get a little money in their pocket.”
Ryan Hughes, CEO of Bull Oak, a San Diego-based RIA, started his firm with no assets under management, and now manages $175 million. He said small firms can use their size as a differentiator.
“We can use our size to our advantage,” he said. “This industry is changing very rapidly. We can do something that bigger firms can’t do, and that is adapt very quickly. If you spot a trend that’s happening right now, there seems to be this anti-AUM battle out there, which I hate. But our target demographic—it actually speaks to them. So we pivoted, and we are gaining market share.”
Larger firms have a lot of resources, but if you’re a good advisor and provide good value, smaller RIAs can compete against the big conglomerates, Hughes said.
“Big firms may have armies of different CFPs and qualified professionals, and they may offer a lot of bells and whistles, which is really attractive, but at the end of the day, it’s all about driving relationships,” he said. “If you can get someone to actually trust you, that’s huge.”
Small firms should have a process for deepening client relationships, he added.
“Whatever you promise your clients, you’ve got to stick with it.”
Smaller firms often lack the technology spending of their larger counterparts; that’s why Ransom-Cooper said it’s important to keep it simple and really think about the technology that your clients will actually appreciate.
“Sometimes we invest in technology, and we think it’s going to make our client service better, and our clients don’t even notice a difference,” she said.
Ransom-Cooper’s firm keeps it lean, using Altruist, Right Capital, Wealthbox and Holistiplan. The firm also has a team-based approach. Everyone has their area of expertise, so they can lean on each other rather than the technology.
She said even if a firm doesn’t have a team, it can create one through partnerships with other small firms.
“I think there’s a way that if we team up together, especially if we’re seeing we’re successful, we can build that in these small, growth-oriented RIAs that don’t have to succumb to joining these big conglomerates.”
