It wasn’t too long ago that the lofty goal of a new registered investment advisor was passing the $1 billion threshold for assets under management.

Times have changed, said Christina Townsend, head of relationship management and wealth solutions at BNY Mellon Pershing.

“It seems like I suddenly woke up one day and $5 billion had become the new $1 billion,” she said as she moderated a panel titled “The $5 Billion+ RIA” at last week’s BNY Mellon Pershing INSITE 2024 conference in Nashville, Tenn. “And so I often hear clients who haven’t hit that milestone ask, ‘What is the secret? How are they growing? Is it organic? Is it inorganic? How are they preparing? And how do I learn from firms who are doing this really well?’”

To answer those questions were three industry veterans who had grown their own RIA to $5 billion or more, first through organic growth that got their firm to a sizable heft, and then through a merger that took them the rest of the way. Joining Townsend were Heather Goodman, co-president of TRUE Cresset Sports + Entertainment and co-president of Cresset Capital; Scott Danner, partner and CEO at Freedom Street Partners, now part of Steward Partners; and Thomas Carroll, president and CEO at Homrich Berg.

Goodman co-founded TRUE Capital Management, an RIA that catered to the needs of professional athletes and entertainers, in 2007, and then combied forces Cresset.

“I built that firm for 17 years, and last year we merged with Cresset. So we were about a $2 billion firm before we merged with Cresset, and now we’re over $50 billion with Cresset, which has been an exciting change,” she said. “It’s been a lovely journey.”

Organic Growth
The panelists agreed that a large, well-capitalized advisory cannot simply buy its way to $5 billion in AUM and be successful. Whether a firm is a buyer or a seller, there has to be an organic growth story that’s part of the equation, they said.

“Everybody likes to talk about growing practices by acquiring, but if you don’t acquire practices and grow them, then you’re not actually earning something on the practice that you purchase,” Danner said. “So an organic growth strategy is mandatory for every practice.”

Danner said Freedom Street’s organic growth is between 10% and 15% annually.  

Similarly, Homrich Berg averages about 12% annual organic growth, thanks to a strategy that’s a combination of tactics, Carroll said.

“We think about a good ground attack, which is advisor networking, COI development, everything that everybody in this room is probably doing—events, sponsorships, the things that you do in your communities to build your network of client referrals,” he said.

More than 60% of Homrich Berg’s new business comes from client referrals, he said.

“That ground attack has to be supported with air cover,” he continued. “And to us, air cover is digital marketing, it’s advertising, it’s social. If you haven’t really invested in social, blogs, a YouTube channel that you push media content to, then you’re not doing everything. We’re constantly pushing videos out through our YouTube channel.”

Search engine optimization (SEO) is also important, he said. “We had a $100 million new client close this year that came to us because of SEO. They literally Googled Atlanta, independent, fee-only wealth management firm, and we popped up first.” Carroll said. “Now, we had to work to close that, but they came to us.”

To support the endeavors of its in-house marketers, Homrich Berg also uses a public relations firm, a media agency, and a search engine optimization firm, he said.

Danner put Freedom Street’s organic growth between 10% and 15%, with marketing being the main driver.

“And I’m not talking about sales literature, which is what a lot of financial advisors think marketing is,” he said. “I don’t care what your sales literature is. I care about your value in the community, how you’re putting yourself out there.”

Goodman said Cresset has been “a marketing machine.”

“We have done an incredible job in seven years to go from zero to $50 billion, and a big part of that has been marketing,” she said. “And I think our events are incredible. We had an interview with George and Amal Clooney talking about their philanthropic efforts and having our clients be a part of that.”

Inorganic Growth
While a firm may chug along with 10% growth per year, an acquisition or merger with another firm can pile on assets a lot quicker, and the panelists agreed that the right kind of acquisitions can propel a firm to asset greatness.

“I believe inorganic growth is going to shape the industry in the next three to five years in a substantial way, whether it’s from major, major growth engines going from zero to $50 billion as we just hear with Cresset,” Danner said. “Steward’s gone from $8 billion to $35 billion in a couple of years with just a little bit of investment but no M&A until we came on. And our growth trajectory is going to be dramatic.”

A key benefit of inorganic growth is it can solve some big problems that the industry is facing, he said.

“The majority of advisors have a very, very sorry plan for their future. And it is so evident, whether it’s your family plan to pass down to your kids who aren’t ready, or potentially will be ready, or will never be ready, or there is a succession plan but you’re not sure whether you have the right or wrong plan,” he said.

Making sure it’s the right plan, Goodman said, has a lot to do with whether a firm has embraced the expansion of services that competitive firms now require. Client service is no longer just about performance, it’s about becoming ”sticky.” he said.

“If you’re doing their estate plan, if you’re doing their taxes, if you’re doing their bill pay, if you’re doing their accounting and life planning and all these different services, you’re going to capture an enormous amount of wallet share,” she said. “But you can’t just offer them, you actually have to do them very well. The stickier you are, the more dependent they are on you.”

Building The Team
Proof that an advisory firm is ready to rise in the big leagues can be seen at the executive level and in the firm’s organizational design, the panelists agreed.

Carroll said that most practices have a choice to make on the road to becoming bigger, whether they’re trying to attract another firm or be attractive themselves.

“Are you a god in your practice, or are you a prophet? If you’re a prophet in your business, you have a business that’s running and you’re a part of it. If you’re the god of your business, you’re all of it,” he said. “And that’s very hard to manage or integrate.”

Investing in a professional management team means spending money and having management perform single functions, he said.

“We had our CFO moonlighting as an advisor. We didn’t really have a marketing function. We didn’t have a COO. We didn’t have a real risk and compliance function,” he said of Homrich Berg’s early days. “And so for the last four years, we have hired meaningfully significant leaders of the firm.”