Frank Smith is President and CEO of Private Advisor Group, one of the largest and fastest-growing wealth management firms in the country. With over $29 billion in assets under management, the firm leverages its resources to deliver services positioned to improve financial outcomes for individual investors and to inspire growth, fiduciary adherence, succession, and a client-centric approach for independent financial advisors’ practices.
Russ Alan Prince: What is the current state of the RIA industry? What do advisors need to consider as they grapple with questioning, should I join an existing RIA or start my own?
Frank Smith: When we founded Private Advisor Group in 1997, the registered investment advisor industry was still in its nascent stages. Today, independent RIAs—which grew 16.7% to a record high of $128 trillion in assets under management in 2021—are the fastest-growing category within the wealth management industry, according to the Investment Advisor Industry Snapshot 2022. What’s clear is that both clients and advisors are drawn to the independent model. Clients recognize that when they work with an independent advisor, they’re gaining access to an advisor committed to doing what’s in their best interests. Likewise, many advisors are eager to leave wirehouses to offer their clients the freedom of choice and pursue their entrepreneurial vision, including having the flexibility to model compensation competitively and aligned with the level of service they provide.
While the RIA industry is rapidly expanding, it also presents challenges. It can be difficult for independent professionals to navigate the many risks and complexities around compliance and other aspects of running a regulated operation—operations, cybersecurity, vendor management, technology, marketing, HR, accounting, and succession planning—while simultaneously serving clients. As a result, advisors need to think carefully about how they want to spend their time and resources. Does it make financial sense to divert their attention away from clients and prospects to handle day-to-day operations or would they be better off partnering with an established independent RIA to handle those responsibilities? It’s not just breakaway advisors that need to ask these hard questions—many advisors who’ve gone independent, or those that have started an RIA, soon realize that they need more support.
We recognize that a one-size-fits-all approach doesn’t work especially when advisors are at different stages of their journey within the independent landscape. For instance, breakaway advisors may not want to start their own RIA but seek to align with an independent RIA. An advisor who’s already independent may be seeking liquidity and succession for their practice. Existing RIAs may be overwhelmed with compliance and operational burdens and seek to outsource those functions. That’s why we purposefully offer flexible, independent affiliation options to best serve each advisor’s distinct business.
Before making the move to independence, advisors should think carefully and realistically about how to structure their businesses and what resources they have. And, if they choose to affiliate with an existing RIA, it’s important to choose a firm that is also a good cultural fit.
Prince: Tell me about Private Advisor Group. How have you adapted to address current market realities?
Smith: Today’s market reality is a constantly evolving landscape, and leading RIAs like Private Advisor Group has had to constantly evolve to help financial advisors navigate the complexities of our profession. For wealth management leaders, one of the big concerns is succession planning. Within the next 10 years, 37% of financial advisors who manage $10.4 trillion, or 40% of total industry assets, are expected to retire, yet one in four of those nearing retirement remains unsure of their succession plan, according to research from Cerulli.
We recently unveiled our Advisor Alignment & Equity program, which creates a path for advisors to unlock value in their businesses by contributing a portion of their practice revenue for an equity-sharing opportunity and a more predictable path to future succession. Advisors remain independent and in control of their practice and may also gain access to additional working capital to fund growth opportunities that can support continuity and succession planning among other business goals. As a firm, we have structured this program to better align with advisors and, in doing so, create value for them that isn’t usually achievable in a traditional single-practice valuation. The program is voluntary and may not be right for everyone, and we acknowledge that, so we’ve also structured other liquidity and succession programs to meet a broad spectrum of needs.
On the business support side, we are constantly evolving our offering, including investing in new tools and technology, to ensure that our financial advisor practices have the support they need to solve investor needs, along with complex operational and regulatory support. For instance, late last year, we launched WealthSuite, our in-house investment management platform that provides advisors with curated, centrally managed investment strategies.
Prince: How do you see the advisor-support business model evolving?
Smith: The RIA landscape will continue to become more complex, and independent advisors and smaller RIAs must learn to manage these operational and compliance-related issues while also serving their clients, growing their businesses, and cultivating the next generation of advisors. In this environment, we believe that they will continue to see the value in partnering with an established entity—a firm that continues to defend independence but helps advisors relieve their administrative burdens.
When it comes to finding the right partner, advisors have many choices. So, beyond finding a firm with the right resources, they also want to work with a partner that shares their values. That’s why we ensure we are always putting our independent advisors first. We do this in a variety of ways, including through our Advisor Council, a diverse group that influences everything we do, and our dedicated engagement team who is there for advisors at every step of their practice’s lifecycle. Most importantly, we continue to cultivate a collaborative culture, offering opportunities for advisors to come together and engage with peers.
RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.