Growth Dynamics in Wealth Management: RIA Platform Opportunities

According to Forbes, there are 660 billionaires in the United States. However, after accounting for large family offices and unlisted similar entities, there may be closer to 1,000 billionaires.¹ While private banks such as UBS, J.P. Morgan, and Goldman Sachs focus on serving the high net worth community, there is a growing segment of the population with assets from $100,000 to $2 million that are not served by the largest wealth managers. Like the high net worth community, this group requires not only investment guidance, but also a trusted partner as their wealth grows.

Investment advisors registered with the SEC are called Registered Investment Advisors or RIAs. Since 1996, investment advisors generally had not been required to register with the SEC, unless they managed at least $25 million for their clients. This requirement changed when the Dodd-Frank Act raised the threshold for SEC registration to $100 million, thus creating a new category of advisors termed “mid-sized advisers” ($25 million to $100 million). As a result of these changes, as well as several other industry developments, the number of mid-sized advisers as well as RIAs has exploded.

A POTENTIAL BOON FOR RIAS

Wealth creation across many demographics, especially within the Millennial generation, is growing significantly. This growth has led to a much larger pool of investors seeking advice. These younger client prospects are prime targets for RIAs. A 2018 survey by Ameritrade predicts that 41% of RIA clients will be Gen Xers and Millennials in 5 years.²

To be prepared for the growth of their client base, RIAs need to improve their processes, infrastructure, and technology. Many emerging RIA firms began as individual advisors left larger platforms and started their own businesses. These advisors are often in the early stages of automation and scale. A study by Financial Advisors RIA reported that the vast majority of SEC-registered investment advisors are themselves small businesses. In 2018, 56.8% (7,147) of advisory firms reported that they employ 10 or fewer non-clerical employees, and 87.5% (11,011) reported employing 50 or fewer individuals.³ At the opposite end of the spectrum, the largest 108 firms employ 52.5% of all non-clerical employees in the industry.

Firms such as Solovis have created advanced, feature-rich platforms for larger wealth management firms. But what do the less complex shops do to create greater efficiency and scale? Examining the core account management and back office needs of the advisors, there are two primary areas of focus:

1. The “front office,” which may include a next generation CRM-type solution, such as that offered by Wealthbox, to track investors/prospects and provide a platform to perform client reporting where investors can view their holdings and performance transparently.
2. The second area is the “back office,” required for accounting, invoicing and billing, and allocation of trading activity. BridgeFT, with its automated and efficient portfolio management software powers RIAs with these capabilities.

Back office efficiency and scalability matter

For the forward-thinking RIAs, choosing the right infrastructure to effectively run their business and properly service their clients is vital. As the category grows, so too will clients’ expectation of a great experience, from the time they select a wealth manager through an ongoing assessment of reporting and support. Our belief is that a proven process powered by scalable technology is the key for leading RIAs to simultaneously provide superior service and returns for their clients, while properly scaling their own organizations.

 

¹ J.P. Morgan Private Bank

² Perkins, M. (2018, May 14). Don’t ignore this looming challenge for advisors. Retrieved January 14, 2019, from https://www.financial-planning.com/slideshow/td-ameritrade-ria-study-shows-financial-advisors-need-to-do-more-to-reel-in-nextgen-clients

³ RIA Industry Sees Record Growth In Firms, AUM, Employment. Retrieved January 13, 2019, from https://www.fa-mag.com/news/advisor-industry-sees-record-growth-in-firms–aum–employment-40703.html?section=3&page=2

 

Note: Solovis and BridgeFT are current MissionOG portfolio companies.

 

Jayesh Punater is a successful Entrepreneur, Investor, Fintech Strategist and Thought Leader. Mr. Punater is the founder and CEO of Nucleus, a FinTech studio and venture investment platform. Besides Nucleus, Jayesh is an advisor to MissionOG. Previously, Mr. Punater founded Gravitas. Under his leadership, Gravitas grew to become a global firm with 300+ employees, managing more than $1.2 Trillion in AUM. Gravitas was sold to Linedata on 2017.

Andy Newcomb is co-founder and Managing Partner of MissionOG, where he focuses on investment opportunities in financial services, data platforms, and software.