The growth of the RIA space spells doom for independent broker-dealers.” RIA cheerleaders have sounded this tired talking point like a drum for more than a decade now.

Here’s the reality: The RIA space has been frontier territory for the past 15 years, with few regulatory barriers to entry and the favorable economics of fee-based models converging to drive outsized growth.

Put simply, much of the growth in the RIA space until recently has been driven by the novelty of the model. First movers and fast followers could easily pick off market share from big broker-dealers and expand rapidly because the playing field was so wide open.

Today, large aggregators and big custodians dominate the RIA space, many of them backed by private equity dollars. As the RIA space matures, the road map to success for a fee-based independent wealth manager has less to do with being scrappy and nimble and more to do with having outsized scale; a sophisticated, turnkey tech stack; and ready access to capital.

In this new normal, well-resourced independent broker-dealers could be very well-positioned to generate new growth opportunities by carving out and capturing a significant segment of the RIA space.

Already In Good Position
Consider the attributes that make the most successful RIAs and RIA aggregators: abundant economies of scale to efficiently support thousands of advisors; a flexible, sophisticated tech stack to streamline home office and advisor operations; and strong balance sheets that allow firms to cheaply borrow or even fund acquisitions themselves.

These are all characteristics that many large IBDs possess as well. Indeed, large IBDs have already checked off the most resource-intensive, hard-to-build requirements they need to successfully play in the RIA market, either through acquisitions or the recruitment of representatives to a corporate RIA platform. They are highly integrated, well-oiled enterprises, with the scale and efficiency to compete with the largest RIA players for merger and acquisition opportunities.

To be sure, small and midsize IBDs are arguably more challenged in terms of efficiency, technology and resources than bigger firms. But if they can build the scale through mergers and acquisitions with similarly sized broker-dealers, they can follow the same playbook as their larger competitors, acquiring or recruiting RIAs to exploit new opportunities in the space.

Ready Partners
Regardless of their size, broker-dealers seeking acquisition or affiliation targets may find smaller RIAs that are more than willing to hear them out. Many of these firms may not want to deal with the complexities and administrative costs of operating a firm on their own and would jump at the chance to enjoy a larger IBD partner’s capabilities and financial resources as they strive to accelerate their growth.

Moreover, broker-dealers can offer firms and their advisors the option of using the IBDs’ support infrastructure if they want to offer clients brokerage services. This could prove to be an asset as more firms explore all-inclusive direct-to-consumer service channels.

The takeaway for broker-dealer executives is that if they take a selective, segmented approach to attracting RIAs, they may find ready partners in smaller firms that stand to gain from an acquisition or affiliation. One caveat, of course, is that larger RIAs and RIA aggregators may be targeting the same firms.

Going From Defense To Offense
Independent broker-dealers have been jumping into the RIA game since the early 2000s, hastily hammering out business agreements to support independent RIAs, or standing up corporate RIA platforms to support newly affiliating investment advisory representatives (IARs)—essentially renting out part of their platforms to gain head count and assets under management.

Many of these efforts were essentially volume plays in which broker-dealers asked little of their new partners. That limited the B-Ds’ financial upside while saddling them with disproportionate costs and risk, and it added minimal value for clients.

Today, because many of the larger IBDs have spent the last several years making investments to efficiently serve a full range of service models at scale, they may be in a much better position than large RIAs and aggregators that, in their enthusiasm for mergers and acquisitions, treated the elimination of redundancies and the full integration of the acquired firms as an afterthought.

The net result: Rather than having to play defense against RIA expansion as they have in the past, large independent broker-dealers could do better for all their stakeholders by going on the offensive.

Seize The Moment
The reality is that the RIA space is more mature and consolidated than ever before, where scale and investment-intensive capabilities are paramount to success. Indeed, these attributes today are far more important than the attributes that may have served RIAs well in the past, such as flexibility and speed. For that reason, certain large IBDs are already making the investments needed to succeed in the fast-maturing RIA segment.

The time has come for a broader segment of IBD leaders to take clear-eyed steps to discern whether their firms have the capacity to ably shift to support RIAs and seize the moment.

There’s no question that the RIA space is no longer the open playing field to all that it once was. But ironically, that doesn’t mean fewer opportunities so much as it suggests a transitioning of advantages in this space to well-resourced independent broker-dealers.

Larry Roth  is founder and managing partner of RLR Strategic Partners (www.rlrstrategicpartners.com), an affiliate of Berkshire Global Advisors, the international investment bank. He is also the lead independent director of Kingswood Acquisition Corp., a publicly registered special purpose acquisition company. He previously served as CEO of AIG Advisor Group and as CEO of Cetera Financial Group.