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New RIAs gather assets more zealously than veterans

Established RIAs also more likely to report a decline in client base than newbies

Monday, December 28, 2009 – 4:44 AM by Brooke Southall
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Brian Davis: Start-up RIA firms tend to focus their efforts on client acquisition.

Necessity is the mother of client growth, according to a new study released by Scottrade Advisor Services.

RIAs with 10 or fewer years of experience were more likely (56%) to report growth in their client base than those (41%) with 11 or more years of experience, the survey shows. Similarly, more than twice as many of the longer-tenured RIAs (20%) reported a decrease in client base than did newer RIAs (9%).

Scottrade polled 226 registered investment advisors from August 12 through September 30, 2009.

The differences in growth are explained by how growth affects the survival prospects of these advisor constituencies, according to Brian Davis, Scottrade Advisor Services’ manager of business development.

“Established RIAs with greater financial resources aligned their focus toward managing client relationships through education and counseling,” said the interim head of the advisor business for Scottrade. “Start-up RIA firms tend to focus their efforts on client acquisition. Client acquisition is vital to the survival of new RIA practices and even more so during an economic downturn.” For more on how Davis took the reins, see: Doug Talir, director and founder of Scottrade’s RIA business, departs

More marketing efforts

The top three modes of marketing by these growth-minded advisors:

1. 54% of RIAs invested more time in informing and coaching their clients. 33% made more time to answer incoming client questions and inquiries.

2. 36% of RIAs made new marketing efforts to help grow their businesses. 26% developed new sales material, and 36% created or enhanced their firms’ Web sites.

3. 36% of RIAs increased visibility in the financial services community and with potential clients through networking. Ten percent of RIAs joined an industry or professional organization.

The study also found that 49% of RIAs surveyed experienced growth in their client bases in the past year with 41% reporting an increase in their client base of greater than 10%.

With markets in the tank, advisors grew in other ways, according to Chris Moloney, Scottrade chief marketing officer and executive director of customer intelligence.

“New clients were a leading source of growth,” he said “Investors who had left full-service brokerage firms were by far the largest source of new client acquisitions for RIAs, with nearly a third of RIAs, (31%) reporting ‘breakaway’ investors as their top source of new clients.”

According to the RIAs surveyed, their clients said they left investment firms and sought out new advisory services mostly for two reasons: Poor performance (51%) and the desire for more personalized attention (61%).

Despite the economic challenges that many Americans faced last year, fewer than 20% claimed that they switched to an RIA because they felt the full-service experience was too expensive. Instead, they were seeking greater service.

“A lot of investors found themselves looking for more one-on-one attention from their advisors,” Davis said.

RIAs also saw more prospective and new clients who were near or in retirement than in years past. In the past year, 74% of RIAs met with more Boomers – at ages 43 to 64 years — and nearly half (47%) met with more seniors, those ages 65 years and up, than in the year prior. Only 8% reported meeting with more Generation Y (ages 18 to 26 years) investors.

Dodged a bullet

Another interesting finding of the study was just how much RIAs appear to have dodged a bullet when the Securities and Exchange Commission decided not to pursue surprise audits as a regulatory strategy.

Only 33% of RIAs said they were prepared if the SEC had imposed a stricter auditing procedure.

Many RIAs said the projected cost of surprise audits would force them to make significant changes and nearly one-fourth (23%) said the costs would possibly force them to close their RIA businesses altogether, according to the Scottrade study.

Only 19% of RIAs said they would be able to absorb the additional cost of surprise audits.

Indeed, Zachary Gronich, principal of RIA-in-a-Box, a New York-based company that helps advisors with regulatory issues, says that surprise audits would cost as much as $9,000 and a couple of days of time.

Related Moves

RIA in a Box gunning for top-notch staff as it readies for Aquiline-fueled roll-up binge, targeting old-school, mom-and-pop compliance competitors

With Ascensus also in its portfolio, Aquiline is showing a penchant for taking dull, fragmented, unloved wealth-management niche businesses and rolling them up into sexier firms

November 29, 2018 – 11:54 PM

Mentioned in this article:

Scottrade Advisor Services
Asset Custodian
Top Executive: Brian Stimpfl

RIA in a Box
Compliance Expert
Top Executive: GJ King

Stephen Winks

Stephen Winks

December 28, 2009 — 8:08 PM

There is a generational difference between RIAs in their 20’s and 30’s and those in their 40’s and 50’s. Younger advisors are more technologically astute, better educated in portfolio construction and are far more adaptable. Given the average age of the advisor is now 55, the future of the industry is with those advisors who embrace innovation and have little or no cultural reticence in doing what ever is necessary to align with the best interests of the consumer. In the process, it is easy to differentiate the broker’s approach to advice (TAMPs and UMAs)which treats advice as a product the broker sells in the best interests of the broker’s supporting firm with the advisor’s approach to advice which treats advice as a process the advisor manages in the best interest of the consumer.

So, there is no mystery as to why advisors who embrace a fiduciary standard are growing and why advisors who are selling advice as a product (TAMP or UMA) are experiencing a decline in assets.

This is why established advisory practices are well served by bringing in young advisory talent who have their future ahead of them and want to agressively grow the business embracing a faster, better and cheaper business model that outdates the old commission sales support infrastructure. Established practices gain successor management and an atttractive exit strategy. Young advisors gain scale that wouyld take them years to achieve. This is the future.


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