Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Stock photo of a person clicking boxes with check marks.

Industry Spotlight > Advisors

How Small RIAs Can Grow While Staying in Control

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • When looking at partnerships, firms with $300 million in assets or less should focus on controlling their brand, unique services and client data.
  • Not every platform is the right fit for every advisor.
  • Small firms should choose a platform big enough to provide needed services but not so big that they get ignored.

Brand identification, information flow and client data are some of the most valuable components of an independent registered investment advisor shop. That’s true whether you manage $10 million or $10 billion. Owning and controlling those components can mean the difference between success and failure.

With this in mind, an advisor must maintain the ability to define his or her practice and service offerings, and own the flow of information that results from day-to-day interaction with clients.

While this may sound obvious for an RIA or an investment advisor representative (IAR) looking to establish a relationship with a platform provider, it’s more challenging than it sounds. True “white label” vendors are hard to find, and many make it difficult to fully separate a brand from that of the platform.

The choices facing an RIA or an IAR with $300 million (or less) in assets are familiar. Aside from joining an existing RIA, there are the traditional bank, independent broker-dealer and conventional wirehouse channels. Each option has historical shortcomings: poor service, hidden costs, limited investment options, corporate branding issues, poor regulatory history, and in some cases, variable annual payouts that create unpredictable income streams for the advisor.

Often, these firms try to obfuscate the obvious problems and induce recruitment by offers of upfront checks or forgivable loans to entice someone to join their operation. There is often a misalignment of values, with the big company culture clashing with the more entrepreneurial, client-centric approach favored by the independent advisor. 

The benefit is that you outsource your back office and compliance. But the risk is that you are diluting your brand by contracting with a firm that isn’t fully aligned with you from a philosophical or product perspective. 

Client Data

There is the further issue of access to client data. Who controls this flow of information? Who benefits from the insight into client behaviors that analytics can provide? 

RIAs and IARs need to review the firm’s onboarding agreements and documentation and drill down to ask the essential questions. Further, they should ask for a copy of the firm’s privacy policy as that document will clearly state the rules surrounding the client’s information and data and whether the RIA or IAR has the right to retain a copy of the client’s data.

There is the RIA direct-to-custodial channel for the RIA or IAR with appropriate asset levels. This business has been evolving rapidly in recent years. A decline in trading revenue and a search for economies of scale has triggered a wave of consolidation across the industry, resulting in fewer (and bigger) providers. This fact alone could be a reason for caution. 

Mergers can be messy, requiring complex technology and cultural integration, which takes time and can create service issues for clients. Smaller RIAs may find themselves overlooked in this rush to expand.

There are other issues with the direct custodial approach as well, including choosing the appropriate technology stack/integration, operational/back-office support, compliance, risk management tools, regulatory matters, and available investment options.

Much of the responsibility for analyzing and understanding these issues in this channel falls on the RIA. This approach demands both technical expertise and, more importantly, time. For a smaller RIA or IAR working to build a business, this can distract from both growing existing client relationships and finding new ones.

Lastly, there are the turnkey RIA platforms that are intended to address the shortcomings of the options mentioned above. The best platforms provide their services while staying in the background, allowing the IARs or advisors self-branded independence and ownership of the client relationship (and data) while providing a quality framework in which these practices can grow, thrive, and be regulatorily sound.

The emphasis in this approach is not only on generating economies of scale but also on providing a high level of consultative service, allowing the advisor to spend less time on back-office functions and more time growing the business.

One Size Fits All?

Every platform is not for every advisor. Among the aspects to consider in selecting a partner are scale and control.

The platform provider should be big enough to meet your needs but not so big that you get ignored. Because brand and data are the key drivers of growth, control should remain with the RIA, as should the economics. 

The beauty of a competitive marketplace is that as consolidation occurs, it creates space for innovators to emerge to address more focused market needs.

Advisors with $300 million in assets or less often have different technology requirements and service expectations than larger competitors. In selecting a platform, they should look to align with a team built to address those needs. 


Tom Prescott is a founder and managing member of Advisory Services Network LLC.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.