The classic RIA era is sputtering and firms must 'decentralize,' hiring non-advisors to specialize, new Cerulli report shows, or RIAs will 'limp along,' a second consultant says

RIAs will need to begin to do more with more – even though they did more with less to get to the cusp of surpassing the Big Four wirehouses, a new Cerulli report shows.

The ultra-centralized, 18,554 RIA firms with about $7 trillion of assets under management are starting to “limp along” as revenues soar with assets, but capacity doesn't keep pace – particularly in “specialized” roles.

“Non-advisor specialists can be a force multiplier for RIAs that have grown to substantial AUM without much support,” the Cerulli report reads. 

“By developing a new role, RIAs can encourage advisors to embrace a more decentralized approach."

Such decentralized delegations trace back decades to Moss Adams reports in the aughts, but it's hardly a stale topic.

“I would say we’re in the early stages of this trend, perhaps the second quarter,” says Stephen Caruso, Cerulli analyst in an RIABiz interview about his new report.

Staff paucity

The RIA triage mentality means human band-aids get applied too frequently.

"[In-house talent] is promoted prematurely in an effort to ‘plug holes,’" says Eliza de Pardo, principal of de Pardo Consulting and Moss Adams alumna. 

"Management will limp along for years without the necessary support.” See: Michael Kitces asks Eliza De Pardo if the $1.5 million RIA revenue threshold is a wall that ends the honeymoon; Short (inconclusive) answer: Yes, but...

RIAs self-report these problems, says Caruso.

“Over half (52%) of RIAs express challenges with structuring roles and responsibilities within their RIA,” he says. “An additional 47% are finding that establishing career paths for staff is an ongoing challenge.”

The paucity of staff at RIAs tells its own story.

The 18,554 RIA firms employ just 78,782 combined and only 35% of those firms have any “specialized” staff, Cerulli's new report says.

Merrill Lynch alone has 35,944 employees, according to its LinkedIn page.  Morgan Stanley, UBS and Wells Fargo are the other three wirehouses.

High costs

Wirehouses have proved to be one-stop shops for RIAs – both in terms of assets and talent, but the Cerulli study shows that now RIAs need to poach from a wider group of industries.

“Recruiting from legal practices, engineering firms, accounting or technology consultancy firms can prove fruitful,” says DePardo.

“What they lack in industry expertise can be learned. Indeed, it is rare in practice to see internal management flourish as they move to higher levels of seniority.”

Bigger RIAs tend to do more hiring, of course, though again often from warehouses or other RIAs, Caruso explains in an email, 

He adds: "RIAs in the mega-team category ($500m+ in AUM) really tap into a growing headcount including 59% that employ junior advisors in either a producing or non-producing role, and 68% that employ specialized staff either in the form of service delivery support (e.g., financial or tax planners) or internal operations roles (e.g., CIO/marketing/compliance). 

Hiring is not only difficult but expensive, Caruso says.

“RIAs need to evaluate the costs in a tightened hiring market. Salary expectations have risen, and RIAs will see a larger impact on their bottom line with each incremental hire.”

Flexing thinking

But RIAs have intrinsic qualities that can more than level the playing field with the big organizations they compete with for talent, says Amy Richardson, who left Charles Schwab Corp. six months ago to join TCI Wealth Advisors, an RIA headquartered in Tucson, Ariz., 

"The opportunity at TCI presented itself, and it was all of the things I loved at Schwab but on a more intimate basis," she said in a December RIABiz interview. See: Amy Richardson left Charles Schwab & Co. for an RIA -- before the 2,000 layoffs -- now a robust job market is saving the Schwab diaspora, she says

“I got to flex my strategic thinking a bit more, and I'm working with the leadership team shoulder-to-shoulder. That was the driver - and not so much the merger,” she adds.

"We still have clearly defined groups, roles, and responsibilities, but due to being smaller in size, you get to see and hear firsthand about what is happening within the firm and collaborate with all the teams within the firm…”