The independent registered investment advisor space began as a small, nascent movement of financial advisors moving away from the wire. But over the past few years, it has become more professionalized, dominated by large, private-equity-backed firms that have grown rapidly through mergers and acquisitions. What does this new environment mean for small VNRs?
During a discussion he led on the topic during the Future Proof Festival in Huntington Beach, California, Kevin Thompson, CEO and president of 9I Capital Group, a Fort Worth, Texas-based fee-only RIA, said he fears a wireframe-like landscape will emerge in the next five years, with just four or five RIA conglomerates gobbling up smaller players.
Amidst this backdrop, Chelsea Ransom-Cooper, Chief Financial Planning Officer, Zenith Wealth Partners, a Philadelphia-based RIA with offices in six markets, said her firm is trying to stay competitive by building on their relationships with advisors and customers.
“When I see a lot of private equity-backed firms, and they're growing these big conglomerates or crowdfunding vehicles, they're really focusing on technology, but they're not really focusing on customers,” Ransom-Cooper said. . “We really believe that if we can empower our advisors to have their own voice and lean into their area of genius, we can be competitive because we have a competitive and unmatched culture that really allows them to 'serve the people who inspired them to be in the position in the first place.'
She added that these private equity-backed firms have a lot of money to lure advisers, making it harder for smaller firms to recruit talent. Ultimately, however, she said the model has limitations.
“It doesn't make sense how they are able to pay advisers this much and then charge clients $100 to $200 a month,” she said. “I don't really see the sustainability in it. But I understand why advisers might want to try something different and get some cash in their pocket.”
Ryan Hughes, CEO of Bull Oak, a San Diego-based RIA, started his firm with no assets under management and now manages $175 million. He said small firms can use their size as a differentiator.
“We can use our size to our advantage,” he said. “This industry is changing very quickly. We can do something that bigger firms can't, and that's adapt very quickly. If you notice a trend going on right now, there seems to be this anti-AUM battle out there, which I hate. But our target demographic – it actually speaks to them. So we pivoted and are gaining market share.”
Bigger firms have a lot of resources, but if you're a good advisor and provide good value, smaller RIAs can compete against big conglomerates, Hughes said.
“Big firms can have armies of different CFPs and qualified professionals and they can offer a lot of bells and whistles, which is really attractive, but at the end of the day, it's all about fostering relationships,” said he. “If you can get someone to trust you, that's huge.”
Small firms should have a process for deepening customer relationships, he added.
“Whatever you promise your customers, you have to stick to it.”
Smaller firms often lack the technology spending of their larger counterparts; that's why Ransom-Cooper said it's important to keep it simple and really think about technology that your customers will actually appreciate.
“Sometimes we invest in technology and think it will improve our customer service and our customers don't even notice a difference,” she said.
Ransom-Cooper's firm keeps it lean, using Altruist, Right Capital, Wealthbox and Holistiplan. The firm also has a team-based approach. Everyone has their own area of expertise, so they can rely on each other rather than technology.
She said that even if a firm doesn't have a team, it can create one through partnerships with other small firms.
“I think there's a way that if we come together, especially if we see that we're successful, we can build that into these small, growth-oriented RIAs that don't have to give up to join these conglomerates of big.”