The evolution of independence

Defining your focus - and the drivers of growth in the RIA industry

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The evolution of independence

Defining your focus - and the drivers of growth in the RIA industry

By IN Research and Cambridge Investment Research — January 9, 2019

The following is an excerpt from a new white paper, “The Evolution of Independence” co-developed by InvestmentNews and Cambridge Investment Research. This research paper describes how building a focused organization – one that understands its unique strengths, value proposition and differentiators – will be the primary driver of success. In addition, this research provides actionable steps for investing in technology, people and client needs that will help drive growth for your practice.

The largest and fastest growing firms in the industry are those that have continuously re-invested in their businesses and have advanced into Stage Three – or the “Focus” stage.

Over the last ten years, many registered investment advisory firms have seen their businesses double – and in some cases triple – in size.

In the InvestmentNews adviser benchmarking studies, the typical independent firm has seen its average assets under management swell from $84 million in 2009 to $253 million in 2018.

This tremendous period of growth has been fueled, in large part, by surges in equity markets, with organic growth and acquisition activity making notable – but ultimately incremental contributions to the industry's accelerated expansion.

With assets, revenues and profits increasing during this time, many RIA firms have been presented with the opportunity to scale their businesses, rapidly transform the structure and focus of their firms – and also re-shape their strategic plans for future growth.

Growth has enabled significant investments in staffing and support at many RIAs firms, as well as technology and digital platforms. These investments are still being made – and importantly, embraced, absorbed and enhanced – and RIA firms are approaching a new period of expansion as a direct result of their more recent success.

What will drive success over the next decade in the RIA industry? A range of individual factors will contribute to growth, but we believe that overall, building a focused organization – one that understands its unique strengths, value proposition and differentiators – will be the primary driver of success.

The concept of a “Consolidation Curve ” – research that was introduced in 2002 and based on an analysis of more than 1,300 mergers – introduced the importance of building focused business. The research suggested that once an industry emerges, companies will generally progress through four stages as they mature. The figure below outlines the four stages, as well as examples of respective industries in each, at the time:

THE CONSOLIDATION CURVE
INDUSTRY CONSOLIDATION LIFE CYCLE
Once an industry forms or is deregulated, it will move through four stages of consolidation – or disappears.

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