Bigger Is Better, but More Complicated, for RIAs: Cerulli

“RIAs need to build an entirely new set of competencies to remain competitive,” according to the report. They need to attract and retain advisors, build scale across a large (larger) number of advisors, offer a consistent and positive client experience across the organization and build an executive management team often consisting of a CEO, COO, chief compliance officer and chief investment officer, Cerulli reports.

“RIAs that can overcome these challenges could ultimately become formidable competitors among wealth management firms,” writes Kenton Shirk, a director at Cerulli.

One major challenge that advisors of billion-dollar firms perceive is the cost of infrastructure. Cerulli’s survey of advisors found that a larger percentage of those in firms with $1 billion or more in assets under management — about 22% — viewed infrastructure costs as a major challenge compared with roughly 12% to 16% of advisors with a smaller AUM, as the chart below shows.

Despite these challenges, the number of billion-dollar advisory firms has jumped almost 60% since 2012 to 687, according to Cerulli. But that number is less than 4% of the 18,000 RIA firms in the U.S., and their average annual growth during the five years ended in 2016 was slower than that of firms with less assets: 9.8% compared with almost 12% for firms with assets of  $250 million to $499 million and 10.6% for firms with an AUM between $500 million and $999 million.

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