The evolution of the RIA has been one of the great success stories of the modern financial services industry. Just 20 years ago, RIAs were essentially a collection of small "mom-and-pop" firms-each one offering personal service focused on local communities.

Investors have rewarded RIAs well for that client focus, and this one-time cottage industry has become a huge part of the financial services landscape. Today, there are more than 16,000 RIAs collectively managing $2.7 trillion in assets (according to Cerulli Associates, company reports and Charles Schwab estimates). There are more than 500 firms managing $1 billion or more, according to 2009 Schwab data. What's more, several RIAs are now extending their footprints beyond Main Street by expanding into multiple states and regions. The RIA model is also gaining popularity with advisors and investors overseas.

As a result of this success, an ecosystem of companies has emerged to serve independent advisors in essentially all areas of their practices-from investment products and platforms to services such as technology, compliance, portfolio management and client reporting. Many of these product and service providers focus entirely on the RIA space, devoting themselves to advisors' unique needs. Advisors today can access a huge number of resources tailored specifically to the way their firms operate.

Of course, these developments haven't completely eliminated the challenges that this industry faces. RIAs' success has made their business a more competitive one. The number of new entrants to the space continues to grow, making it more difficult for firms to stand out from the crowd. Meanwhile, other types of advisors are attempting to co-opt those key attributes that have traditionally given RIAs their competitive advantage, such as their fee-based models and their roles as fiduciaries.

In tomorrow's marketplace, RIAs will need to differentiate themselves beyond the existing RIA characteristics. In particular, advisors will need to manage their brands, their processes, their technology and virtually all the key areas of their practices like an enterprise. This approach will be helpful in attracting both talented personnel and the types of clients that are becoming increasingly important to advisors' future growth.

In short, advisors must bridge the gap between the service-oriented boutique and the professionally run enterprise. To make that happen, advisors should focus on three main things:

They must develop a strategic plan. Strategic planning is a driver of many top firms' success today. The top 20% of independent, fee-based RIAs in Schwab's RIA benchmarking study make a point of creating strategic plans for the future direction of their businesses and then use them to guide all their decisions. And yet, as important as strategic planning is to firms' success, it is largely ignored. Fewer than 50% of RIAs have strategic plans in place, according to the study.

Creating strategic plans may be a key component of advisors' success in the coming years. As more advisors enter the RIA space-either directly or after transitioning from another model-the growth won't be as easy to come by as it has been. Advisors will need to do more to stand out from the competition in order to attract ideal clients (and serve them well), and also take care of legacy clients. They will need to set growth targets and determine how to meet them. They will need to know how to best allocate resources to both client service and business development and determine where to find those resources. And they will need to put their goals to paper and ensure their employees fully understand their plans so that everybody in the firm is fully committed to achieving them.

Strategic planning that spells out a firm's short-, medium- and long-term goals (and provides a road map for everyone involved) will be crucial to making these and other mission-critical decisions intelligently.

Advisors must segment their clients. The percentage of RIAs who segment their clients into distinct groups (based on their specific needs, affinities, behaviors and other characteristics) rose to 39% in 2010, up nearly 10 percentage points from 2009, according to Schwab's benchmarking survey.

Though advisors usually segment their clients to control expenses and enhance their profits, more important is that the practice ultimately makes clients happy as well and helps business development. Segmenting helps advisors answer an extremely important question: "How do we group our clients in ways that make the most sense and provide the services they most need?"

This process forces advisors to look closely at whom they serve best and look at who is not a good fit for their businesses. That allows them to create a better client experience for the investors they want to serve, as well as work in a more economical way.

As RIAs grow and expand their capabilities, they may even choose to serve multiple client segments and design specific service models to meet the needs of each group. (For more on the increasing prominence of investor demographics, see "The Changing Affluent Investor," in the February 2012 issue of Financial Advisor.)

Advisors must use technology to improve their productivity and service. Don't be surprised if a briefcase full of paperwork is soon replaced by machines. In the future, advisors should be able to sit in their clients' homes or offices and be able to access all financial information remotely. Current and future clients-especially those children of existing clients and younger wealthy investors-will increasingly expect advisors to use technology to give them information and answers immediately, on demand.

Over the last year alone, we have seen technology use rise among RIAs. According to the Schwab benchmarking study, 96% of advisors used portfolio management systems in 2010, while 84% used CRM systems and 83% used e-mail retention. Many advisors also used technology for tasks such as document management, financial planning, trade order management and portfolio rebalancing.

To fully leverage current and future technology investments, advisors should consider three best practices:

Use technology strategically. Firms thinking strategically will view technology as a fundamental component of their business strategy and future success. They will ensure that any technology they consider using can improve the experience they want to deliver to clients, while simultaneously enhancing productivity and freeing up time for advisors to pursue growth opportunities.

Integrate disparate technologies. Going forward, there will be greater demand for integration and connectivity. An RIA's various applications and systems need to communicate and work together. This will help firms eliminate inefficiencies, such as having to manually enter data in multiple systems, and deliver more responsive and accurate client service by allowing advisors and staff to quickly access client data from one single point of contact.

Outsource. Today there are more service providers catering to RIAs than ever-and RIAs are increasingly outsourcing key functions such as IT support (outsourced by 75% of advisors), payroll processing (67%), compliance (38%) and data management (27%). Outsourcing enables advisors to save time, reduce costs and, most important, stay focused on their core competencies of managing relationships and developing new business.

Conclusion
The RIA industry is evolving and becoming more competitive than ever. That means advisors have to start thinking bigger and going beyond their current capabilities if they want to navigate new developments and propel their businesses in the future. They must envision their firms as they want them to look in one year, five years and even 10 years-and start taking steps right now to turn those visions into reality.

Most important, they must build practices that seamlessly blend the best traits of both an enterprise-level business and a service-driven boutique. Making that happen will require advisors to plan strategically for their future growth, to design service models that deliver the highest quality experience for ideal clients and to incorporate technology solutions that ensure maximum efficiency and effectiveness.

There's no time to waste. By taking action today, advisors can help manage the success of their firms, their staff and, most important, their clients for decades to come.   

Bernie Clark is executive vice president and head of Schwab Advisor Services, a leading provider of custodial, operational and trading support for nearly 7,000 investment advisory firms.Information provided is for general informational purposes only.

Schwab Advisor Services serves independent investment advisors and includes the custody, trading and support services of Charles Schwab & Co., Inc. Member SIPC.
Independent investment advisors are not owned, affiliated with or supervised by Schwab.