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.
