We Can Stop Advisor Industry Churn: Orion CEO

What You Need to Know

Consolidation and other competitive pressures make launching an RIA more difficult now, says Orion CEO Natalie Wolfsen.
New technology and new ways of thinking can help new advisors thrive, even as client demands grow.
The pace of M&A is unlikely to slow, but small shops aren't going to disappear, either.

If there were one statistic showing the promise and the challenge of running a registered investment advisor firm today, according to Orion CEO Natalie Wolfsen, it would be the fact that the number of RIAs seems to be stuck right around 15,000.

Equally striking is that these firms are staffed by between 300,000 and 325,000 advisors. This number has also held steady in recent years, despite there being a lot of new people entering the industry annually and “a ton” of demand for financial planning services among retiring baby boomers, mid-career Gen Xers and wealth-building millennials.

This “equilibrium” shows how hard it is for new advisors to get off the ground and for new practices to establish themselves for the long term in an increasingly consolidated and competitive RIA environment, Wolfsen recently told ThinkAdvisor.

Despite the entrance of impressive talent and sky-high demand for advice, operating an independent RIA just isn’t getting any easier.

“The churn at the lower end of the industry is still a big challenge,” Wolfsen said.

Part of the high failure rate of practices today could tie to the fact that many new RIAs are being established by people with a deeper interest in financial planning over commission-based brokerage work. These people bring key skills to the industry, Wolfsen said, but they can also find themselves struggling with the pressures of scale that are a reality for RIAs today.

“I think some of those breakaways we see or the brand new advisors don’t always have that entrepreneurial background that you might expect,” Wolfsen said. “They are coming to the RIA world from a different industry, or they come from a different part of the financial services world — not the wirehouses. I think there’s a lot we can do to help them be more successful.”

Another concerning fact: estimates from the research firm Cerulli Associates and others suggest the industry could shed as much as 30% of its headcount in the next decade, simply due to advisor retirements.

“What this all spells out in practice is that there are a lot of new business models that are emerging that want to attract assets and advisors,” Wolfsen said. “It also means that consolidation is here to stay, but I also believe there will always be a role for those smaller community-based advisors. We want to support them all.”

More Open to Outsourcing

“The good news here is that technology and solutions providers, like ourselves here at Orion, are working on this issue every day,” Wolfsen said. “We are here to help fight the churn.”

Advisors who are open to relying on technology partners and home-office investment management resources can win back 10 to 15 hours a week, according to Wolfsen. This time can then be reinvested in deepening existing client relationships and growing the firm organically — and in establishing better work-life balance early on in the process.

Navigating Consolidation

Asked for her view on the likely pace of mergers and acquisitions through the end of the decade, Wolfsen said the trend of fast-paced M&A is here to stay, and that will have an effect on peoples’ decisions about where they want to work and “what type of advisor they want to be.”

The headline-grabbing deals remain in the large end of the market, Wolfsen said, with impressive wirehouse corner office teams and the bigger independent RIAs making multibillion-dollar moves. But the activity has also moved to smaller advisors, and those advisors are either being rolled up or they are affiliating with one another.

“Investors’ needs are changing, the industry is consolidating and many original founders of these smaller RIAs out there are themselves getting close to that traditional retirement age or even beyond it,” Wolfsen said. “It’s very dynamic, and it’s a great time to be helping financial advisors.”

It’s not likely that consolidation in itself will steer people away from the industry, Wolfsen said, but it could change the typical path of a person who ends up working for an RIA.

“As the industry scales up, it does get harder to compete based on service,” Wolfsen said. “I think it will become rarer to see people truly going it alone and starting an RIA from scratch. Very likely, they’ll either affiliate or they’ll rely on third-party providers to do a lot of heavy lifting. That means the aggregators will continue to have a vibrant pool of advisors to acquire.”