"I think many 'smaller' RIA firms have already been feeling financial pressure, not just in compliance, but in the following areas":
Marketing and business development budget.
Cost of back-office operations.
- Staffing
- Technology
Office expenses.

It won't be just the financial stress that will cause smaller firms to look to merge or form a strategic alliance. The following contribute to the decision-making process:

Time management. The principals of many small firms are already wearing multiple management hats. Yes, the switch will add to each firm's workload in dealing with multiple regulators, the possibility of multiple audits in a given year and either the time it will take to keep up the annual registration in these states or outsource this work to a compliance consulting firm.

Process management. Firms are going to need to implement proactive operational processes in order to deal with the multiple state regulators. The need to integrate the compliance management process into a smaller size RIA firm's day-to-day operational processes will become a must in order to be efficient with a firm's workload.

The reality is that many firms have enjoyed unprecedented growth with little pressure to lower infrastructure costs or provide greater operational efficiencies until now. With the last couple of years of stock market activity coupled with these new regulatory issues, the focus has definitely shifted to net profitability, which can be enhanced not only with increased marketing and new client acquisition methods, but also by providing greater cost efficiencies in providing services.

This can fall into several areas of practice operations, including management and technology. Standardized processes can have the effect of increasing the productivity of employees, even in smaller firms. With technology, many procedures may be automated. Some firms fear such moves as they see their firms as providing customized solutions. Yet technology can provide ways to deal with this in a more efficient work environment. Some firms have already purchased such technology, yet due to the work involved in adapting the technology to work the way the firm needs to operate, that same technology may not have been fully utilized.

It makes sense to fully investigate your choices and talk to industry experts about the likely consequences of those choices. Specifically, running a cost/benefit analysis that compares those choices side by side might be an effective way to evaluate and determine your best choice.

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