It's hard to believe hat it has now been five years since we started conducting our annual RIA survey. Looking at this year's survey, it's remarkable to see how far the advisory business has advanced in a stormy half-decade.

The survey is capably directed by our Managing Editor Dorothy Hinchcliff and our Survey Editor Sherri Scordo and skillfully chronicled by Senior Editor Eric Rasmussen.

Back in 2005, an RIA firm with $1 billion in assets was a behemoth. By 2010, the year for which the current survey was conducted, a firm that size was a larger-than-average, mid-size business. 

For the sake of comparison, the average wirehouse branch office manages about $1 billion in assets. Today, most major metropolitan areas have several firms this size. Some regions with large concentrations of wealth have many.

One statistical takeaway I found particularly intriguing was that among the 50 fastest-growing firms, 11 have more than $1 billion in assets. Several of these firms are doing it through mergers and acquisitions, while others are relying on organic growth.

I don't believe for a single second that growth for its own sake has much value. We know all too many tales of giant companies like Lucent Technologies, Cisco, WorldCom and Rite Aid that enjoyed a brief era of spectacular growth and became addicted to sustaining it at any cost.

Sometimes, the biggest cost to these businesses was their own integrity as rapid expansion gave way to creative accounting. In other cases like Cisco and Microsoft, the problem revolved around expectations and reputational damage. Like great athletes late in their careers, they couldn't live up to their own press clippings.

Still, as Fiduciary Network's Mark Hurley is fond of saying, many of the strong are likely to get stronger. They have more levers at their disposal and more strategic options to consider. And as Eric Rasmussen's story illustrates, they can become magnets that smaller firms feel comfortable merging with and joining as minority partners.

In 2007, I asked the founder of a giant RIA firm, Aspiriant's Tim Kochis, if he ever had second thoughts about giving away so much equity and creating so many smaller partners. His response was that when he went through the 2000-2002 recession and had difficulty sleeping some nights, it gave him some degree of comfort to know his partners probably were experiencing similar feelings.
The folks at smaller RIA firms may well be providing clients with the same or even a higher-level quality of advice as the mega-firms. But they have fewer partners tossing and turning at nights during bear markets.

Evan Simonoff, Editor-in-Chief  

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