Billion-Dollar RIAs Face Growing Pains

Billion-Dollar RIAs Face Growing Pains


July 2018, Boston. The most recent research from Cerulli Associates, a global research and consulting firm, has found that billion-dollar registered investment advisors (RIAs) experience a new set of growing pains when they achieve the coveted threshold of $1 billion in assets under management (AUM).

“As smaller RIAs reach $500 million or more in assets, they transition from a practice to become a functional business, but as firms surpass $1 billion in assets, they reach a new phase in their business lifecycle,” says Kenton Shirk, a director at Cerulli. “In many cases, they begin to support a growing number of advisors across multiple locations, and as they centralize services and resources, they develop a home-office support structure analogous to that of a broker/dealer (B/D).”

In this new phase, RIAs need to build an entirely new set of competencies to remain competitive. “They now face new challenges such as attracting and retaining advisors, building scale across a large number of advisors, enhancing advisor productivity, and offering a consistent and positive client experience across a large organization,” continues Shirk. “They need to build an executive management team, which often includes hiring roles such as chief operating officers, chief compliance officers, and chief investment officers.”

Cerulli research finds that billion-dollar RIAs grew 9.8% annually during the five years ended 2016. RIAs with $250 million to $500 million in AUM grew 11.8% and firms with $500 million to $1 billion grew 10.6%. The seven RIAs with $10 billion or more at the beginning of the period grew only 6.0%, even underperforming the growth rate of small B/Ds with $10 billion to $50 billion at 9.5%.

Despite these hurdles, Shirk maintains that “RIAs that can overcome these challenges could ultimately become formidable competitors among wealth management firms.”

These findings and more are from the 3Q 2018 issue of The Cerulli Edge – U.S. Advisor Edition, which provides insight into the concerns that home offices face as they manage scale, profitability, and multiple personnel challenges.

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