Top RIAs Identify 4 Most Critical Challenges for Advisors

1) Increasing competition from a new breed of market participants.

"The RIA channel has experienced significant growth over the past decades," Furey said in the phone interview. "Within the channel, there is a new breed of market participants, whether regional or national firms or very large RIAs or consolidators or online firms that are building very scalable entities. As those firms continue to grow, the 22,000 to 24,000 advisors that exist will face increasing competition from these firms."

2) The age of clients is a critical factor in practice value and transferability of business.

"Clients and advisors are getting older, and one of the systemic issues in the industry is the lack of both continuity planning and succession planning," Furey added. "Advisors age 55 years and older could face unforeseen consequences when looking to sell or transfer their business if there is an inverse correlation between age and practice value. If you and your clients are older, you may not be able to maximize the value of your firm." 3) Independent advisors have more choice than ever in delivering value to clients.

"Advisors have never had more choice with regard to growing and building their businesses, but all of that choice can be confusing if you don't understand what you are looking at," said Exencial's John Burns in a statement. "All of us [in aRIA] have gone through the process of surveying the options, dealing with the players and learning from those experiences."

4) Understanding the true worth of an advisory business.

"The true worth of an advisor's business is one of the big questions in the marketplace," Cooper said. "What do you really own? Do you own an enterprise with true transferrable value that can be sold? Or do you own what is essentially an annuity? One of the big issues that we discuss in this white paper is that the vast majority of advisors out there don't have any true enterprise value in their business because they are the business. Yet business value is based on the certainty of future cash flows. When the advisor leaves or becomes ill and dies, the likelihood of the clients staying with the firm is not great because the client was attached to that individual person. But if the business is institutionalized, where the clients have multiple touch points and recognize the brand as their advisor and not the individual, there's much value there for a buyer."

ARIA's first of four white papers can be downloaded free at www.allianceforrias.com. Future papers in the series will cover:

• Taking control of your future: scale, value and uncertainty
• Myth vs. reality: What is your independent advisory firm really worth?
• Navigating your path forward and achieving your ideal model