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.