A large majority of independent advisory firms will see their business value stagnate just as they near the point they want to exit the business, says the Alliance for RIAs (aRIA), a confederation of six RIA firms that brands itself an advisor think tank and offers business growth consulting.
In a just released whitepaper, the second in a series of four on creating value in an independent advisory practice, aRIA warns that most advisors fall into the “annuity trap” of treating their business primarily as a source of current income rather than building “real enterprise value.”
Building value in a business requires addressing long-term structural issues, but “advisors are usually not emotionally or philosophically willing to address business structure issues proactively,” say the aRIA advisors.
The group’s members are Brent Brodeski of Savant Capital, John Burns of Exencial Wealth Management, Ron Carson of Carson Wealth Management Group, Jeff Concepcion of Stratos Wealth Partners, Matt Cooper of Beacon Pointe Wealth Advisors and Neal Simon of Highline Wealth Management.
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To avoid the long-term structural problems of a neglected business, hazards including fee compression, erosion of margins, recruitment challenges, low market valuation and limited liquidity, aRIA advisors say advisors must build scale and see their firm as surviving its owner’s exit from the business.
As evidence that most firms neglect this, the whitepaper cites Cerulli research that shows the top 742 RIA firms–or just 4.5% of SEC-registered advisor firms–control 60% of all RIA assets. The dominance of just a few firms in this space is a growing trend, they say, adding that 334 or more firms have already reached the billion-dollar asset level, more than three times the number of such firms just five years ago.