RIA in a Box’s 10 Must Read RIA Practice Management Blog Posts of 2016

1. RIA Industry Study: Comparing 2014 and 2015 AUM Growth Rates (August 1, 2016)

For the 2015 calendar year, we observed that the overall average AUM growth rate of RIA firms dropped significantly compared to the 2014 calendar year. Much of this decline can be attributed to the relative performance of the equity markets over the past two years, but nevertheless demonstrates the potential year to year revenue volatility of a typical investment advisory firm regardless of size. The chart below reflects the average AUM growth rate for RIA firms during the 2015 calendar year was 1.97%. This compares to an average AUM growth rate of 23.30% during the 2014 calendar year.

2. How to Use Search Engine Optimization to Grow Your RIA Firm (August 5, 2016)

To be successful at search engine optimization (“SEO”) and improve organic, unpaid search results, an investment adviser first needs to take a step back and determine exactly which niche the firm focuses on. It’s going to be extremely difficult for the average investment adviser to rank highly for a generic search term such as “fiduciary financial advisor.” However, if the firm has a unique focus such as catering to dentists in Cleveland then it is going to give itself a better chance at SEO success.

3. RIA Industry Study: Number and Types of Technology Systems Utilized (October 5, 2016)

As an RIA grows to serve more clients, administrative overhead can become a burden and consumes more and more time, often at the expense of the client experience. Many new technology solutions have come to market, however, that enable RIAs to operate more efficiently and to provide a better client relationship and investment experience. For the purposes of this study, we explored these four investment adviser technology categories: customer relationship management (“CRM”), financial planning, portfolio management and reporting, and document storage.

4. RIA Industry Study: Outsourced vs. In-House Portfolio Management (August 15, 2016)

Another important decision RIA firms face is whether to manage client investment portfolios in-house or to outsource management to a third party. An important consideration when making this decision is how it may impact a client’s perception of services offered by the advisory firm. As such, firms want to select reputable and trustworthy 3rd party asset managers with which to entrust their clients’ assets.

5. RIA Industry Study: Active and Passive Portfolio Management Styles (August 8, 2016)

RIA firms determine whether to manage client investment portfolios with an active, passive, or hybrid management style. An active approach generally implies buying and selling securities with the intent of outperforming an investment benchmark index. A passive approach generally implies utilizing index funds or similar investment vehicles such as exchange-traded funds with the intent of mirroring an investment benchmark index. Hybrid firms, in regards to portfolio management style, are not absolute in their investment philosophy and may offer a mixture of passive and active portfolio management solutions to their clients (e.g. a core and satellite investment strategy).

6. RIA Industry Study: The Profile of Firms that Offer Financial Planning (August 29, 2016)

While the majority of RIA firms offer traditional portfolio management services, many investment advisory firms hope to establish deeper client relationships by also providing additional services such as financial planning (FP). By offering financial planning services, RIA firms often look to offer more holistic wealth planning services to help clients meet their financial goals. Some advisors choose to include financial planning services as part of the standard investment advisory fee while others may charge separate financial planning fees.

7. RIA Industry Study: Average Investment Advisory Fee is 0.99% (December 8, 2016)

As has been the case for quite some time, there is still a large concentration of industry advisory fees around 1.00%. Although the average investment advisory fee charged decreased slightly compared to the prior year, we do not believe this is a significant enough decrease to signal actual industry fee compression. This area does deserves further analysis, however, especially if the industry continues to evolve as rapidly as it has in recent years.

8. The Compelling Advisor Economics of the Independent RIA Model (October 11, 2016)

Many in the industry assume that firms need a significant amount of assets under management (AUM) in order to prosper. However, the industry stats paint a much different picture. Of the 2,159 new firms created in 2014, only 635 of those shops had an AUM figure greater than $50 million. Thus, over 70% of new RIA firms which are created start with less than $50 million in AUM. Furthermore, most advisors do not realize that the median AUM of the over 32,000 RIA firms currently registered is less than $20 million according to the latest publicly-available statistics.

9. Become a Fee Only RIA to Create Long Term Business Enterprise Value (November 7, 2016)

To quantify the value creation an advisor could experience when transitioning to an RIA, it is important to note that in general, the majority of RIA firms, or any other wealth management book of business, will traditionally be valued as a multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA). EBITDA serves as a benchmark for a business’s level of profitability. While revenue matters, two firms with $100 million of assets under management each generating $1 million in annual revenue may be worth vastly different values depending on the level of profitability.

10. When Does an RIA Need to Hire a Dedicated Chief Compliance Officer? (November 23, 2016)

The RIA industry is highly fragmented and only around 10% of firms likely employ a full-time CCO. Furthermore, the majority of full-time CCOs are employed by large firms with $1 billion or more in AUM. There is a lot of misinformation that has been published over the years implying that even the smallest investment advisory firms should budget for a full-time CCO hire. As the data above confirms, that myth is wholeheartedly debunked. Instead, the vast majority of investment advisory firms will typically have a principal of the firm fulfill the Chief Compliance Officer role requirement as one of their many responsibilities.

Be sure to check back next week as we recap the top RIA regulatory compliance blog posts of 2016.