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Advisors Want to Stay In Their Client-Segment Lane

To grow their business, RIAs would choose client “clones” over inheritors of client assets or investors with more or less wealth, a report shows.

Whether they know it or not, independent RIAs are heeding some advice that McKinsey gave to wealth managers two years ago. 

In a 2020 report, the consultant argued that there would only be two “winning” business models in wealth management: massive firms with the necessary scale to be everything to every customer, and other firms that are focused solely on the wealthiest investors. RIAs are doing the latter, and they don’t plan to change, at least not in the near future.

Most independent RIAs work primarily with mass affluent households (with $1 million to $5 million in assets) and high-net-worth households (with $5 million to $10 million in assets). Fewer are focused on “emerging wealth” households (with less than $1 million in assets) and other client segments, according to a February report by Institutional Investor’s Custom Research Lab and Franklin Templeton Investments, which surveyed 152 RIAs.

A fraction of the RIAs surveyed were focused on a single-family office, ultra-high-net-worth families (with $10 million to $100 million in assets) or institutions, such as endowments or foundations with $5 million to invest or more.

“Referrals from existing clients make up the majority of new client acquisition for RIAs, while a distant second are referrals from a ‘center of influence’ source, such as an attorney or accountant. So, it’s not surprising [that] most RIAs seek to ‘clone’ their current and best clients,” Jonathan Kingery, senior vice president and head of Private Wealth at Franklin Templeton, said in an e-mail.

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Few RIAs said that their first priority was ensuring that the children or inheritors of existing clients become clients. However, 61 percent of RIAs said that extending their client relationships across generations of families was a second priority.

Acquiring new clients who aren’t “clones” of their current ones, at least in terms of their wealth, was not as important to RIAs.

But what McKinsey suggested might not be right for every wealth management firm.

Most RIA clients are over the age of 60, and less than 10 percent of current RIA clients are under age 40, which “unsurprisingly mirrors” the advisor demographics within the RIA industry. “RIAs would be well-served [to secure] the next generation of inheritors within their existing client base,” Kingery said.

He also said that RIAs should consider whether serving additional client segments could benefit the business.

Of the 152 RIAs surveyed by Institutional Investor’s Custom Research Lab and Franklin Templeton Investments, most respondents were a principal, partner, chief executive, or the equivalent. The RIAs were located throughout the U.S., and most managed between $250 million and $5 billion in assets.

Michael Thrasher (@Mike_Thrasher) is the editor of RIA Intel and based in New York City.

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