The independent financial advisor channel has enjoyed a strong decade of growth and can look forward to continued growth, but firms in this space need to understand the changing factors within the industry and how to respond to them, says a recent white paper by the Alliance for Registered Investment Advisors (aRIA).
The aRIA group comprises six high-value RIA firms that collectively manage more than $20 billion in client assets, as well as Advisor Growth Strategies, a Phoenix-based consulting firm serving the wealth management industry. The group periodically offers insights in building value in firms.
RIAs, hybrids and independent contractors that work with independent broker-dealers turned in a compound annual growth rate of 7% between 2007 and 2010, versus a 5% decline for the wirehouse and bank channels during that time. The independent channel is expected to grow by 6% through 2013, compared with an expected 7% decline in the wirehouse and bank channels, according to the white paper, entitled Creating Value and Certainty Within Your Independent Advisory Firm.
To capture that growth, independent advisory firms need to be able to compete with firms in their market area, with online advisory services and with financial advisors from other channels. They also need to be able to develop business continuation and succession plans, learn to value their firms, and deal with changing compliance and regulatory issues, aRIA says.
Larger and more sophisticated firms are going to continue to expand their regional and national footprints. In 2005, there were fewer than 50 firms with more than $1 billion in client assets. As of 2011, there were 344. "The implication for advisors is these large firms have the revenue to support investments back into their businesses and to increase functionality and drive scale," aRIA says.
At the same time, the influence of independent firms is going to continue to increase. "Within two years, independent advisors will likely have a greater market share than wirehouses in terms of assets under management," says the white paper.
aRIA advises independent firms to keep reinvesting in their business as they grow, and to establish a practice built on recurring fee revenue to help raise the future value of their firms.
In addition, advisors should diversify their business lines, services and revenue sources to better stabilize their cash flow.
Achieving economies of scale will help advisor firms add clients without hiring more people, and help in all manner of operations, including investment management and research functions, marketing and technology.
Finally, the advantages and risks of sharing equity with employees should be weighed. Sharing equity can drive growth and distribute ownership risks, but it can also be a "giveaway" to employees if not structured properly, aRIA says.
Group members in aRIA are Brent Brodeski, CEO of Savant Capital; John Burns, principal at Exencial Wealth Advisors; Ron Carson, CEO of Carson Wealth Management Group; Jeff Concepcion, CEO of Stratos Wealth Partners; Matt Cooper, president of Beacon Pointe Advisors; and Neal Simon, CEO of Highline Wealth Management.