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Technology > Investment Platforms > Turnkey Asset Management

Consult, Find a Niche, and Succeed

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If you haven’t noticed, a number of reports have been released over the past few months providing a snapshot of the registered investment advisory and wealth management businesses. The reports offer a somewhat contradictory view of the RIA industry–like whether it’s growing or shrinking, and which types of firms pose the biggest competitive threat to advisors. It’s always a good idea for advisors to read through as many of these reports as possible, as they offer not only a basic overview of the industry, but often a soup-to-nuts lesson plan on how to take your business to the next level.

Take, for instance, studies from Cerulli Associates in Boston ( and CEG Worldwide in New York ( Both agree that competition remains one of the biggest challenges independent advisors face in growing their firms, and that advisors are fighting it out amid a more packed playing field and an unstable stock market. But as John Bowen, president of CEG, points out in “The Future of the Business,” poor markets are often a good omen for advisors. Advisors and stockbrokers rank unstable market performance as their third worst nightmare–right behind finding enough wealthy clients and generating enough asset growth, Bowen says. Yet investors tend to flock to advisors when the markets head south. This means “substantial new assets for advisors,” Bowen says, “provided that they understand the importance of client communication during these times.”

Bowen says advisory firms that embrace wealth management services on a “consultative basis,” rather than one based on pushing product, are better equipped to differentiate their firms, keep existing clients coming back, and bring new ones in, even during trying market times. CEG Worldwide found that the majority of advisors with net incomes greater than $150,000 use a consultative approach to wealth planning, while no advisor with less than $75,000 did so. CEG Worldwide surveyed 371 independent broker/dealer representatives, 204 RIAs, and 542 stockbrokers.

Whom Should Advisors Fear?

Cerulli’s “State of the Registered Investment Advisor Market” study, meanwhile, concludes that RIAs are giving marketing a more prominent role in their business plans. More firms, it says, are hiring a separate marketing staff or outsourcing the service. And when it comes to competition, RIAs are still reluctant to believe they have anything to fear from broker/dealers and banks–which may not be such a wise conviction, according to Cerulli. CEG’s Bowen also argues that it’s now more imperative than ever for advisors to take some cues from their B/D brethren in how to capture more assets.

After trailing RIAs in fee-based and wealth management services, B/Ds and bank trust departments may now be catching up, Cerulli says. And both B/Ds and banks have the ability to integrate banking and asset management services.

Cerulli found that while RIAs dismiss smaller banks’ asset management capabilities, they do envy lenders’ ability to be one-stop providers. But are affluent consumers really interested in getting all of their financial needs met at one place? “No,” answers a study by Click Communications, Inc. (, a strategic marketing firm in Chicago. In “The Motivations Behind the Money: Attitudes of Mass Affluent and High-Net-Worth Customers of Financial Services Providers,” Click found affluent clients prefer to spread their assets among providers. Karen Valdez, a Click marketing strategist, looked at individuals’ reactions to “mega-organizations that offer insurance, banking, asset management, and brokerage. What this survey revealed is that people are not interested in that. They are interested in minimizing their risk by diversifying across organizations.”

When choosing a financial services firm, affluent investors first consider a firm’s reputation, and then “want an organization that has a core competence.” She adds: “A lot of mega-organizations have been formed through consolidation over the past 15 years, and it’s sort of like [they're saying], ‘We were really good at banking, so we should be really good at asset management.’ People just aren’t going with that.” This, of course, offers niche players a chance to promote specialty services and grow market share.

Click surveyed 610 affluent individuals, of which 298 were “mass affluent,” with $100,000 to $500,000 of investable assets, or $500,000 to $1 million of investable assets or household income. An additional 312 were high-net-worth folks, those with $500,000 to $1 million in investable assets and $100,000 of household income or $1 million of investable assets. Some 61% used commission-based brokers; 35% used brokers who charged a fee; and 20% paid asset-based fees. Valdez says 46% had only one brokerage relationship. But more than 70% did business with more than one bank and insurance company. Click also found that a firm’s responsiveness and its reputation outranked superior performance, low fees, and premium and online services. In fact, lackluster responsiveness and customer services are the top reasons a client abandons a firm. Individuals are also more concerned with a firm’s integrity than with its array of online service, Valdez says. Cautions Valdez: “Online services are part of customer service. So if an online tool is used for that, and that’s a medium that a customer wants to communicate with, [the Web] adds value. It doesn’t have a lot of value in terms of attracting them.”

The Numbers Game

How many advisors are out there? Cerulli says the market is shrinking, with the number of retail RIA firms dropping from 11,728 in 1999 to 11,468 in 2001. Cerulli says this drop represents “the beginning of a period during which few new entrants will emerge and existing competitors will merge.” Cerulli sees only 10,000 RIAs by 2007. But at the same time, the number of SEC-registered advisory firms is growing. According to a joint survey by the Investment Counsel Association of America (ICAA) and National Regulatory Services (NRS) of investment advisors (, 7,581 SEC-registered advisors have filed Form ADVs, a substantial increase from the 6,649 firms that did so last year.

ICAA Executive Director David Tittsworth says growth in SEC-registered advisors is strong, and more advisory firms are likely reaching the $25 million assets-under-management threshold. New advisors are also entering the market, he adds, and assets under management in SEC-registered firms have grown by $1.7 trillion as well. Discretionary assets under management as of May 15 totaled $19.7 trillion, compared with nearly $18 trillion a year ago, although the figures may reflect some double counting of assets in wrap programs.

There are a lot of statistics in these reports, but plenty of clues as well. Peruse them as you contemplate your future as a consultative, niche-oriented, and (probably cautiously) online presence.


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