Despite High Growth, Operational Complexity Challenges RIAs

Strategic partners such as asset managers, custodians, and practice management consultants should step in, says a new Cerulli report.


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Despite high overall growth in the RIA channel, operational complexity, particularly among small to midsize RIAs, is a major challenge for advisors hoping to compete in the increasingly competitive and consolidated market.

According to new research by wealth and asset management research firm Cerulli Associates, RIAs said that the most significant challenges they faced were compliance responsibilities and filings and the time required to run a business, with 84 percent and 78 percent of the respondents, respectively, selecting them as either a moderate or major challenge. Significant operational responsibilities and selecting, maintaining, and integrating technology were the next top selected challenges for RIAs.

Many of the challenges that are inhibiting growth can be overcome by working with strategic partners, said Cerulli.

“RIAs often grow in a vacuum; the independent nature of the channel limits opportunities to collaborate with other firms and work through shared problems,” said Stephen Caruso, senior Cerulli analyst, in a statement. “Within this missing link, there is an opportunity for strategic partners such as asset managers, custodians, and practice management consultants to provide additional support as these firms grow.”

These partners see the value in RIAs. According to the report, 67 percent of distribution executives believed that the independent RIA channel will be the best opportunity over the next three years. And some asset managers have already stepped up. According to the report, 36 percent of distribution executives are offering business consulting services to the billion-dollar RIAs they work with, and another 18 percent plan to. But more can be done to serve all RIAs.

Cerulli believes that asset managers need to target the “pain points of RIAs via value-add programs.” By doing so, these managers can provide needed support while also getting in front of the decision-makers who influence product selection. According to the survey, 40 percent of advisors found wholesaler delivery of best practices from other advisors “very valuable,” while 34 percent found both advanced financial planning techniques and client-approved educational or marketing materials very valuable.

“Thought leadership content on key topical areas — such as the intergenerational wealth transfer and new client prospecting — can be invaluable to a growing RIA striving to build deeper relationships with existing clients,” the report said. “Developing strong relationships with RIAs is paramount as assets bloom in the channel and consolidation continues to create concentrated pools of assets. “

The RIA business is booming. According to the research from Cerulli, the overall five-year compound annual growth rate (CAGR) of RIAs was 14.8 percent in 2021, although growth across the channel has been unequal.

RIAs with more than $5 billion in assets under management grew at a 24.7 percent five-year CAGR, while firms sized between $100 million and $250 million grew at just 3 percent.

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