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All For One and One For All: What RIA Roll-Ups Can Teach All Advisors

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Acceleration! That’s the byword in today’s RIA marketplace, where the trend for large ‘consolidator’ firms to ‘roll up’ smaller RIA firms is rapidly picking up speed. That’s in contrast to a few years ago, when the financial downturn forced roll-up firms to slow down their activities and make fewer deals.

Why the change? First off, many RIA holding companies (rollups) are now flush with funds from large private equity firms, so the market is once again in acquisition mode. Secondly, with the rise of Gen X and Gen Y investors, who expect heightened levels of client service, many smaller RIA firms are seeking ways to upgrade their service offerings by rolling up into larger entities. And thirdly, regulatory changes such as Dodd-Frank are forcing these smaller RIA firms to reassess their abilities to meet compliance regulations on their own, and seek strategic partnerships or roll-up opportunities that mitigate the cost and risk. 

The Consolidators’ Dilemmas

When an aggressive RIA holding company brings smaller firms into the fold—and gains mass as a consolidator of multiple firms—it is forced to contend with several key questions:

Does it try to impose some level of uniformity on the disparate firms it now possesses? How does it maximize efficiencies and economies across these entities? How does it ensure that the clients of its rolled-up firms continue to be satisfied in the face of change, and that client retention remains high? And of course, how does it leverage these client relationships to increase revenue and profits? 

The success of the holding company depends on how well it answers these questions. For example, if a holding company consists of 20 acquired RIA firms, and they’re each still using their own internal systems (including 10 different portfolio management systems, for example), it isn’t possible to simply flip a switch and suddenly consolidate them all into a single streamlined operation. Rather, the holding company needs to find and implement solutions that will work over time—whether this involves making adjustments to the respective corporate cultures, adopting new technologies, or launching concerted “silo busting” initiatives. Right now, let’s focus on new technology, with a specific look at how it relates to the lifeblood of any firm’s business: its data. 

Dealing With the ‘Data Disconnect’ 

The greater the number of firms that are rolled up into a large RIA holding company, the greater the likelihood of a ‘data disconnect.’ That’s because there may be huge differences in the operations of each acquired firm across the holding company—with no consistency on a firm-by-firm basis as to how they gather, process and report on data. So the management team at the holding company may be receiving internal reports that give them an uneven picture of how each of the acquired firms is doing.

This problem is exacerbated by lack of access to data, which makes it difficult for the management team to make smart, forward-looking business decisions. For example, what if the team wants to know the amount of the total assets held by the clients they’ve acquired? They’ll find that this figure is often a mystery, since the acquired firms may have no visibility into their client’s held-away accounts, such as 401(k)s and 529s. 

Or if these firms do get the data, they may still be manually entering it, which consumes countless hours and diverts the firm’s advisors from more rewarding tasks such as serving clients and growing the business. This drives up costs, lowers profitability—and worst of all, leads to under-served and perhaps dissatisfied clients. 

Data Aggregation Gives RIA Rollups an Advantage

As RIA holding companies grapple with the intricacies of bringing together multiple firms, they have expressed particular interest in data aggregation technology, which gathers complex account data from thousands of institutions and delivers it to advisory firms on a daily basis. 

The advantage of data aggregation is that advisors can see the entirety of their clients’ assets, such as 401(k)s and 529s, which otherwise wouldn’t be visible. And by getting this total transparency, advisors can not only monitor the performance of these held-away accounts, they can also start to advise clients on them—and eventually take them under management (and tally them as AUM). All without the burden and cost of manual data entry.  . 

Quite simply, for today’s holding company, data aggregation is the way to see and report on all of the assets at all of the RIA firms they’ve rolled up. It’s the key to gauging the company’s pipeline of future fee-based revenue—essential for making decisions about which course the holding company should take moving forward. And that makes it an effective succession planning tool, by which advisors can project the ultimate value of the business they’ve worked to build, and ensure that they receive fair remuneration as it passes into other capable hands.


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