Mark Hurley, the mutual fund entrepreneur and irrepressible pundit, is stirring the pot again. Six years ago, when he was running Undiscovered Managers LLC, Hurley said that the advisor industry would split into three tiers–megafirms, mid-sized specialist business, and a host of smaller practices. In this world, the smaller firms would fare especially poorly. Hurley has since sold his business to J.P. Morgan Asset Management, but he remains convinced that his thesis is playing out exactly as he predicted.
Now a Dallas-based senior advisor to Headwaters MB, a merchant banking firm headquartered in Denver, Hurley believes that the smaller RIAs are caught in a squeeze of sharply rising costs and stiffening competition for clients and professional staff. His conclusions are contained in a new white paper from J.P. Morgan and Undiscovered Managers entitled “Back to the Future: The Continuing Evolution of the Financial Advisory Business” (The paper is available at www.jpmorganfunds.com/UndiscoveredManagers/).
In the paper, Hurley and co-author Sharon Weinberg, a J.P. Morgan Asset Management managing director, note that while 1,102 RIA firms generate more than $1 million in annual revenue, more than 16,000, comprising 81% of the industry’s players, claim less than $25 million in assets. Most of these smaller players generate less than $1 million in annual revenue and are “marginalized businesses that are unprofitable after paying their owners a market-level salary and have few, if any, resources to fund their growth and evolution,” the paper contends.