Investment Operations

Increasing Operational Complexity Among RIAs Opens New Opportunities for Asset Managers

Guidance from strategic partners is necessary to ensure continued growth

The registered investment advisor (RIA) channels have experienced a compelling growth trend, yet they find themselves confronting operational challenges that can impact their long-term prospects. Asset managers can expand their support of RIAs by providing engaging, value-add programs to help mitigate these challenges, according to the latest Cerulli Edge—U.S. Advisor Edition.

In 2021, RIAs with more than $5 billion in assets under management (AUM) grew at a 24.7% five-year compound annual growth rate (CAGR) compared to the overall channel performance of 14.8%, a 10-percentage-point differential. This contrast in growth becomes increasingly apparent when considering that firms sized between $100 million and $250 million have grown at a 3% five-year CAGR. Struggling to grow assets at a smaller scale highlights the competition and challenges facing RIAs in an ever-changing and increasingly complex advice market.

According to the research, the operational components of running a business are most challenging for the channels. Compliance responsibilities/filings and the time required to run a business are both considered major challenges by 23% of advisors. The regulatory requirements RIAs face are unique to the channel and present an area in which advisors are highly involved operationally.

“RIAs often grow in a vacuum; the independent nature of the channel limits opportunities to collaborate with other firms and work through shared problems,” says Stephen Caruso, senior analyst. “Within this missing link, there is an opportunity for strategic partners such as asset managers, custodians, and practice management consultants to provide additional support as these firms grow.”

On average, 40% of RIAs find best practices from other advisors delivered by wholesalers to be very valuable. Thought leadership content on key topical areas—such as intergenerational wealth transfer and new client prospecting—can be invaluable to a growing RIA striving to build deeper relationships with existing clients. Developing strong relationships with RIAs is paramount as assets bloom in the channel and consolidation continues to create concentrated pools of assets.

“RIAs looking to broaden their approach and find success in other areas will need to ensure they are taking advantage of opportunities afforded to them by strategic partners,” says Caruso. “By tapping into an external resource, RIAs can adapt to changing dynamics and set themselves up for long-term success,” he concludes.