While growth may be slowing, RIA profit margins are still healthy, said Penney, adding advisors don’t experience much pressure to lower fees, but they are adding services and increasing the costs of serving their clients.

Some of the best run firms in Dynasty's network have enthusiastically embraced outsourcing, he said.

“They’re constantly asking themselves ‘what’s my secret sauce?’ and whatever that secret sauce is, whatever is differentiated, that’s what they’re going to invest in,” said Penney. “Anything else that’s taking up their time, they’re going to outsource it.”

Dynasty partners spend about 13.6% of their firm’s revenue on payroll, while the industry as a whole spends 24.4% of their revenue on payroll, he noted.

“They happen to be growing faster, too, but that’s not too difficult to understand: They have time to grow,” said Penney.

Synthetic or not, there’s no substitute for scale, and that’s something Dynasty has at its disposal. Penney’s network has grown to 47 partner firms of various sizes, the largest currently at more than $7 billion AUM, encompassing $40 billion in client assets.

Penney cited Cerulli Assoiates research that showed that there are now over 687 RIAs with more than $1 billion AUM. “If you extrapolate from that, less than 4% of all RIAs now control north of 60% of the assets. They’re not slowing. Those numbers are just getting more and more acute.”

“Size and scale matter a lot in our industry, and we don’t all fully appreciate how much,” said Penney. “You have to really understand what’s happening from a competitive dynamic perspective. It’s not 10 years ago, when you could talk about the fiduciary advantages of your model. Going forward, your largest competitors are going to be large regional firms.

“The top 20% of RIAs as defined, those north of $500 million AUM, are growing four times faster. The reason is that they’re closing more prospects and growing by adding twice as many new clients—and those clients are twice as large.”

More simply, larger firms have more time to think about growth, said Penney, who cited a survey showing that RIAs spend 52% of their time on client-related activities and 30% on middle- or back-office activities. A much smaller amount, 14%, is spent on portfolio management.