Growth Dynamics in Wealth Management: RIA Platform Opportunities
By Jayesh Punater & Andy Newcomb
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 servicing the high net worth community, there is a growing segment of the population with assets from $100,000 to $2 million that are not serviced by largest wealth managers. Like the high net worth community, this group requires not only investment guidance, but also trust and service as their wealth grows.
Since 1996, investment advisers 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 by creating a new category of advisers termed "mid-sized advisers” ($25 million to $100 million). Investment advisors
registered with the SEC are called Registered Investment Advisors or RIAs. 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 of these RIA firms grew from individual advisors who left a larger platform and started their own business. 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.
Many of these RIA firms grew as advisors left a larger platform and started their own business. These advisors are often in the early stages of automation and scale. Firms such as Solovis have created advanced, feature-rich platforms for larger providers. But what do the less complex shops do besides rely upon Excel?
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 be 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 looks to power RIA with these capabilities.
Back office efficiency and scalability matter
For the forward-thinking RIAs, having the right infrastructure chosen to effectively run their business and properly service their clients will be rewarded. As the category grows, so to will clients’ expectation of a great experience, not only when they select a wealth manager, but also through consistent 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.
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 is 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.
(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
