One of the most appealing things about being a Registered Investment Advisor is independence. You – and your firm – get to serve your clients based on what you know is best for them, not a corporate rule book. You set your own growth goals. You develop your own value proposition. While the hours are often long, you get to set them yourself.
So why then are so many RIAs choosing to join or be acquired by larger firms? It can’t be for the freedom, right?
Well, it’s complicated.
According to Investment News in its Q1 2024 RIA Deal Book, DeVoe & Company logged 65 transactions over the first three months of the year, representing a 3% rise compared to the 63 deals in Q1 2023. It also marked the second consecutive quarter of growth after a rebound in Q4 2023.
Here are some of the main factors that are driving RIAs to join larger firms:
Economies of scale and scope. By joining a larger firm, RIAs can benefit from lower costs, higher revenues, and greater operational efficiency. Larger firms can offer RIAs access to more resources, such as technology, compliance, marketing, research, and investment products. Larger firms can also help RIAs expand their client base, geographic reach, and service offerings.
Regulatory and competitive pressures. RIAs face intense regulatory scrutiny and complexity. RIAs also face competition from other financial intermediaries, such as broker-dealers, banks, and robo-advisors. By joining a larger firm, RIAs can leverage the firm’s regulatory expertise, compliance infrastructure, and brand recognition.
An audit by the SEC can be both overwhelming and costly for RIAs that are unprepared for the process. The SEC filed 784 total enforcement actions in fiscal year 2023, a 3% increase over fiscal year 2022, and obtained orders for $4.949 billion in financial remedies, the second highest amount in SEC history after a record-setting amount in fiscal year 2022.
Even if an RIA is compliant, SEC audits are extremely time consuming. At Moneta, however, the audit process is handled by the firm’s compliance department, protecting the advisory teams’ time and attention to focus on client care and business development.
Succession planning and valuation. Many RIAs are owned and operated by advisors who will someday look for an exit strategy or a transition plan. By joining a larger firm, RIAs can allow a smoother and more sustainable succession process. Larger firms can also provide RIAs with more options and flexibility for their ownership structure and compensation model.
And as to the freedom so many Advisors sought when they first started? By choosing the right partner, they can continue to call the shots on client service but have more flexibility and time because of the greater resources of the larger firm.
At Moneta, we offer the autonomy you want – to best serve your clients – with the resources you need to grow. If you’d like to learn more, let’s talk.
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