Time to Hang up the RIA Gloves? Here’s What WSR Readers Think

Our Latest WSR Survey of Financial Advisor Readers Suggest Broader Shifts to the Small and Mid-Sized RIA Segment Have Just Begin

With Reg BI apparently the settled rule of norm for the wealth management industry, there’s arguably more of a level playing field between the RIA and IBD segments than ever before in prior years.

Michael Madden,
Contributing Editor & Research Analyst

As WSR’s Senior Editor Janeesa Hollingshead points out in our latest Ask the Experts section on whether it makes sense for a small to mid-sized RIA owner to become an Investment Advisory Representative:  Sentiments about RIA ownership are changing across the industry.

According to our latest WSR survey of our financial advisor readers – commenced in early June and concluded last week – there are rising concerns about intensifying regulatory costs and complexities involved with owning an RIA.  

At the same time, there is a growing recognition of the fast-proliferating alternatives to owning an RIA.

Further key highlights of the survey are as follows:

  • 77% of respondents strongly agree that independent RIAs will face significantly increased regulatory, operational and administrative complexities over the next 12-36 months
  • 44% of respondents strongly agree that the majority of independent RIAs are well-prepared to navigate these increased complexities over this same timeframe
  • 65% of respondents who are small RIA owners (defined as RIAs with $200 million or less in client assets) are open to exploring the possibility of business structures and models that would reduce their personal involvement with regulatory and compliance affairs

In a deeper dive sub-survey of respondents from the small RIA segment:

  • 31% believe the best solution is to pursue a change-of-control transaction and sell to another firm
  • 57% believe solutions that maintain business independence and ownership while reducing direct, day-to-day involvement and responsibility for compliance and regulatory affairs are the best approach for the future
  • Of this 57% of respondents, nearly 62% believe becoming an IAR with a larger, independent pure-play RIA is the best solution – With the balance of respondents in this group split evenly among becoming part of a dual registrant firm, joining a Hybrid RIA or joining a Super-OSJ group.

Absent more longitudinal data, it’s difficult to reach absolute conclusions, but one thing is clear:  Attitudes that used to be much more absolute about the desirability of owning an RIA versus being an independent affiliate of a larger organization are much more fluid.

Are Investment Advisory Representatives up for the challenge in owning an RIA?

While the immediate cause seems to be regulatory change, it’s impossible to rule out changes in technology and consumer behaviors as major contributing forces as well.

What this means, therefore, is that industry pundits who argue that the RIA segment will return to the status quo ante once the latest regulatory dust has settled might be overly optimistic.

Long viewed as a force for change vis-à-vis the broader wealth management space, the independent RIA segment could be facing broader shifts on a continued basis.

Michael Madden, Contributing Editor & Research Analyst, can be reached at mmadden@wealthsolutionsreport.com

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