Easy success has led to a complacent population in the RIA ranks, according to findings that Echelon Partners CEO and founder Daniel Seivert presented during the Pershing RIA Symposium. This is no surprise with the average RIA tripling in revenues between 2010 and 2017, meaning an average compounded annual return of 16%.
"We've had the good fortune of some incredible tailwinds in the market as well as dynamics that is making this a strong growth industry," Seivert told the audience.
However, he emphasized three areas that RIAs need to work on when trying to maximize the value of their firm:
- Growth strategy
- Target clients and different segments to pursue
- Advisor productivity
Growth Strategy
Most advisors have grown organically, Seivert said. However, "we see there are firms that have not mastered organic growth and we believe that is a recipe for big challenges ahead," he said.
Wealth transference was the next factor of growth. Working with spouses and the next generation was especially important with the $30 trillion of wealth transference happening in the next 30 years, he said.
Recruiting was a good way to grow that didn't take much or any capital, with tuck-ins, a combination of deals and recruitment being on the same level.
Mergers were next, with acquisitions being last. "Most firms haven't dedicated the resources [to acquisitions], but once a firm is ready, they can be powerful. But firms should focus on the other elements first," Seivert said.
To put this in context on how they evaluate firms, he said that most economists put medium growth between 1.5% and 3%. Right now, he said, the economy is growing at a rate of around 4%.
In contrast, for the financial services industry, growth typically is between 7% to 14% as a median, while for financial management it's about 15% growth. "If you're not growing more than 10% [a year], you're viewed as a slow grower," he said. Fast growth typically is about 20% a year.
With total professionally managed assets about $30.2 trillion now, using 14.4% growth as a multiplier, firms will be doubling in size in five years. Even using a lower 7.2% growth rate, they would double size in 10 years. "We could be at $60 trillion [in assets] by 2027," he said.
But the money management business is woefully behind other industries, he said.
