Confronting The Headwinds That Small RIAs Face

Private Advisor Group’s Marble Discusses Challenges And Potential Solutions For Leaders Of Small Advisory Businesses
Verne Marble, Director of Business Development, Private Advisor Group
Verne Marble, Director of Business Development, Private Advisor Group

Any group of advisors who launch an independent RIA must continue wearing their advisory hats while adding a new role as business leaders – managing a long list of functions that were once the purview of someone else. Some may be content or even excited to take on the role of a business leader, finding freedom in that, while others look for partnerships and alliances that allow them to focus on the aspects of advisory work they enjoy.

Beyond personality-based preferences, matters of scale and expertise can weigh on independent RIAs, forcing them to find ways to maintain competitiveness. To understand these challenges and how leaders of small RIAs can manage them, we spoke with Verne Marble, Director of Business Development at Private Advisor Group. Marble shares the factors driving these headwinds, mitigation steps advisors can take and how they can determine the best course for their RIA.

WSR: Tell us why small RIAs face headwinds that put them at a competitive disadvantage.

Marble: Resource constraints, lack of economies of scale and the increasing complexity of the regulatory environment all pose significant hurdles for smaller RIAs. Challenges in these areas impact their ability to profitably scale their operations, invest in new offerings to meet client needs, and effectively manage risk within their enterprises.

On the other hand, larger RIAs tend to have figured these things out. In other words, they’ve aligned their growth objectives, service delivery, technology roadmap and risk management profile with their overall pricing strategy to ensure that they run profitably and at scale.

A recent example of this is with a team that joined us about a year ago. They were operators of their own RIA and had reached $1 billion in AUM. However, even at this size, the owner was feeling constrained by having to run and oversee most elements of the operation. So, he made the decision to close the RIA and to align with a strategic partner. He recently informed us that they had their best year ever, and it was largely attributable to having “time back” and the additional support of a firm of our size.

WSR: How do these headwinds cause difficulty in regulatory compliance, technology, client demands and market volatility?

Marble: Regulatory compliance responsibilities can be quite burdensome for smaller RIAs because many lack dedicated compliance professionals or resources to effectively navigate the increasingly complex regulatory environment.

Many costs and business risks are sometimes overlooked when starting out that are significant and essential expenditures.

Verne Marble, Director of Business Development, Private Advisor Group

Furthermore, many costs and business risks are sometimes overlooked when starting out – such as infosec and cybersecurity – that are significant and essential expenditures. A larger firm can help shoulder the burden of cost and implementation to help keep advisors and clients well protected.

We do hear from smaller firms that they outsource many of the compliance functions. While this is a solution, it does introduce additional costs to the firm. And, since smaller firms tend to be more sensitive to expenses, any introduction of new or increasing costs can negatively impact them by diverting resources away from client facing activities (i.e., retention and growth activities).

WSR: What options are available to small firms to overcome these challenges?

Marble: There are a couple of different potential pathways for smaller RIAs to consider:

Streamline and harmonize. Conduct a strategic review of your business to ensure that it is running as efficiently and profitably as possible. This means getting a handle on the costs to profitably serve clients and to operate the enterprise. Where there are misalignments, make adjustments (over time) to people, processes and technology to create an alignment of resources that are designed to support your business objectives.

Partner. Find a strategic partner that can bring resources and scale to you. This may involve selling or merging, which could compromise your independence. However, another option is for smaller RIAs to stop running their regulated entity and to tuck-in with a larger RIA. This pathway could allow them to retain their business entity, brand and independence while gaining scale, resources and a community of advisors with which to network and collaborate.

WSR: How can a small firm decide the best course of action for its needs?

Marble: We recommend asking:

  • Is your time focused where you enjoy spending it?
  • What is your continuity and succession plan?
  • Are expenses and regulatory burdens becoming too onerous?
  • If you’re considering a change, what are/will be your key decision-making criteria?

Entrepreneurs frequently enjoy growing their businesses and spending time with clients, not necessarily in operating a regulated entity such as their own RIA. For example, we frequently speak with RIAs that are interested in “tucking in” and leveraging our infrastructure and scale, which allows them to de-risk and create capacity and efficiency if the answers to the questions above are not favorable.

Succession and/or liquidity needs continue to cause advisors to explore different business affiliations.

Verne Marble, Director of Business Development, Private Advisor Group

Finally – and this is widespread across the independent profession – succession and/or liquidity needs continue to cause advisors to explore different business affiliations that could potentially meet those needs. Tapping into a larger community can open access to more options.

Michael Madden, Contributing Editor and Research Analyst at Wealth Solutions Report, can be reached at

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