Time to get your game on, small advisory firms

Panel says 'lifestyle' practices face future of diminishing profit margins

Nov 15, 2012 @ 3:24 pm

By Dan Jamieson

Small advisory firms will face increasing competition for clients from larger RIA firms that have more resources and more-robust service offerings, according to owners of several large firms who are looking to expand.

The advisers, part of a panel today at Charles Schwab & Co. Inc.'s Impact 2012 conference in Chicago, warned smaller firms that their so-called “lifestyle” practices, which typically have little or no enterprise value, face a future of diminishing profit margins unless they take steps to build economies of scale into their businesses.

The panel, all members of the Alliance for Registered Investment Advisors, a think tank of large firms that are publishing white papers on strategic issues advisers need to deal with, suggested that small firms will have to consider more outsourcing options, hiring more staff, combining with other firms or selling out.

“We will be competing more with each other,” Neal Simon, chief executive of Highline Wealth Management, said at the session.

“You've been competing with wirehouses … whose businesses [have been] broken,” said Mr. Simon, whose firm manages about $1.2 billion. But the larger advisory firms will be getting large enough to begin bumping into other registered investment adviser firms, he said, and thus will be much tougher competitors.

John Furey, moderator of the panel, and founder and principal of Advisor Growth Strategies LLC, said the industry soon will see a new category of $10 billion-plus firms.

“Once you get to $20, $30, $40 billion size, and you have a fiduciary construct and a national brand, how are you [smaller firms] going to compete with that?” Mr. Furey said in an interview after the panel discussion.

Brent Brodeski, chief executive of Savant Capital Management, which manages around $2.7 billion, and Ron Carson, chief executive of Carson Wealth Management Group, whose advisory unit runs about $1 billion, rounded out the panel.

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