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Why do some RIA firms outperform their peers?

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The registered investment advisory channel has experienced fantastic growth over the past decade, whether measured in clients served, advisors employed or assets managed.

Some RIAs, however, have grown at much faster rates than others. What are the key factors that enabled these firms to outperform their peers, and what can RIAs do to enhance their ability to achieve exceptional growth in the years ahead?

The inaugural RIA Edge Study set out to answer those questions by examining the growth rates of hundreds of RIA firms. The study’s findings reveal important insights into the drivers of industry growth and successful strategies for achieving intentional growth.

While the overall AUM growth rate for RIAs and dually registered firms from the start of 2017 to the end of 2021 was 64%, growth rates were significantly higher for two segments of the industry: Established firms (those with more than $250 million in AUM) and Expanding firms (those that had increased AUM by 50% or more since the end of 2016). Comparing these segments offers insights into how different strategies can impact growth.

One might expect a more cautious outlook after such an extended period of strong growth, but RIAs are generally upbeat about their growth prospects. Indeed, 94% of the RIAs surveyed said they expected their AUM to increase 10% or more in 2022, and the median anticipated growth rate was 29%.

The RIA Edge Study reinforces what we’re seeing across our business at Thrivent Advisor Network. Independent advisors are optimistic about their future growth, and they’re looking to increase their capacity to serve clients more cost-effectively and align resources to expand their reach and impact. That includes leveraging the strengths of others – whether that involves hiring the right staff, outsourcing certain functions, taking on a partner, or affiliating with another firm.

Three top focus areas for growth

While growth strategies differ depending on a firm’s size and life stage, the study found that areas of emphasis generally fall into three categories:

  • Talent acquisition and human capital management. With fierce competition for talent across the industry, most RIAs recognise the critical need to attract, develop and retain top talent to achieve sustainable growth. Those pursuing intentional growth are increasing their focus on recruiting and retaining advisors as well as adding specialised support roles that help improve the productivity of partners or lead advisors. It’s also important to make sure that every new hire is a good cultural fit for your organisation’s values and shares your passion for service excellence. After all, who you work with has a big impact on the satisfaction or joy you get out of your work. If you trust, respect and genuinely enjoy spending time with the people you work with, everything is so much easier to solve.

Mergers and acquisitions

  • While the number of RIA M&A deals hit a record in 2021 for the 10th consecutive year, most RIAs expect M&A activity will continue to grow in 2022. Overall, 45% of all RIAs surveyed expect to acquire another firm or team of advisors this year. From my vantage point, I see several major factors converging to drive M&A activity.
    • Many RIAs are looking to M&A to increase the scale and sustainability of their business and enable continued investment in technology to yield more efficient processes.
    • Others are finding that in today’s tight labour market, it’s easier to acquire talent than it is to hire talent.
    • Timing is yet another key factor, with so many advisors looking to transition or retire over the next decade.
    • Then there’s the ready availability of capital, as there’s never been more interest in investing in the wealth management business.

Referrals, marketing, and business development.

  • Organic growth remains a key driver of RIA growth. The survey found that RIAs on average expect to generate one-third of their growth organically in 2022, while Expanding RIAs (those that had increased AUM by 50% or more since the end of 2016) anticipate roughly half of their growth to be organic.

 

The survey also found that referrals from existing clients is the top contributor to organic growth, followed by marketing and brand awareness, and increasing prospects in existing markets. The embrace of marketing and brand awareness represents a shift for many RIAs, many of which have relied on direct client acquisition tactics rather than broader marketing strategies. Many are finding that an effective online presence is a major if not leading source of referrals.

This is an exciting time to be part of the independent wealth management space. Our industry has come so far since its inception just a few decades ago, and the opportunity to make a meaningful impact for clients has never been greater. If you’re an advisor looking for a successful long-term succession plan, it pays to take a deliberative approach – and plan well ahead to maximize the value of your business. After all, planning and executing a strong succession helps ensure that your clients and the next generation of their families will be well cared for.

Overall, my guidance to independent advisors, especially those early in their career, is simple: Enjoy the journey. Focus on what you do best – and let others handle the rest. For most advisors, that means working with clients to help them achieve successful outcomes for generations to come. And it means growing your business, your impact and your legacy.

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