Why can rapid growth be so dangerous for RIA firms? Tibergien, who now is CEO of Pershing Advisor Solutions, says their span of control gets strained and "risk management gets overlooked."
As the profession keeps consolidating and some firms are established with growth through acquisition as their key goal, these problems can compound themselves, he adds. Many of the biggest consolidators are "balance-sheet reliant," so there is a risk they can properly fiund their growth.
That, in turn, can put their liquidity and credit-worthiness at risk, Tibergien adds. Raising more equity is expensive, particularly if a firm's finances are dicey. The result is that today's larger RIAs need to watch their capital structure more closely.