What's keeping RIAs up at night? Ask the custodians they work with

While increased market volatility and recession fears might be causing some concerns for advisors in the RIA world, those are far from the only issues keeping them up at night, according to two voices from the RIA custody space.

"It's not just markets. Certainly that matters," Devon Klumb, head of sales at Betterment Advisor Solutions, told InvestmentNews. "But beyond that, it's the infrastructure that supports their business, the experience that they deliver, and this constant feeling of needing to evolve, to stay in the game," 

What makes life interesting for advisors at smaller RIAs, Klumb says, is "the fact that they wear so many hats." Apart from being entrepreneurs, they have act as investment strategists, doing due diligence to identify the best solutions for their clients' portfolios. Beyond that, many pull double duty several times over as their firm's compliance offer, technology integrators, and de facto therapists to their clients.

"There's much context and code switching that goes on in any given day of of their life," Klumb says.

Mike Watson, SVP and head of RIA Custody at Axos Advisor Services, agrees that the ever-changing landscape of regulations is an omnipresent challenge for RIAs. Apart from enhanced standards from Regulation Best Interest at the federal level, he points to state-level rules that can add more layers of client responsibility for those in certain jurisdictions.

"You have state-level privacy laws, whether that's new privacy laws in California, like the CPRA [California Privacy Rights Act], or the Virginia Consumer Data Protection Act, or the Colorado Privacy Act," he says. "Those laws require advisors to implement really robust data protection measures and provide transparency about how they're collecting data and the usage."

From his vantage point, Klumb says advisors in the RIA world have more choice in technology than they did 15 years ago. While the complexity of running a business, chasing down client assets, and operational troubleshooting are constant pain points, a lot of that weight has been lifted thanks to new software and digital systems.

"They have the ability to search for and pick from tools that help them reduce friction," he says. "They can automate a lot of the back office work that they've traditionally spent a lot of time on, and really [have] the opportunity to leverage technology and get that time back."

In its 2024 Advisor Survey, Betterment found independent financial advisors were able to spend 54 percent of their day-to-day on financial planning. Other items took up much smaller blocks of their schedule, including 5 percent for compliance and 15 percent on investment-related tasks, which they were able to address with appropriate technology solutions.

For Watson, artificial intelligence and data analytics are becoming table stakes for RIAs, particularly as they face a growing need to connect with younger generations and clear a higher bar of client expectations.

"I would say modern clients demand personalization," he says. "Gone are the days of simply building a portfolio of maybe some stocks and mutual funds and bonds ,and being able to charge a 1 percent  management fee for these services."

For former wirehouse advisors making the leap to the RIA space, personalization might not be such a burden. Part of the pull of independence, Klumb says, is the ability to invest in closer client relationships and feel a true sense of purpose in their work.

"There's a real mindset change when an advisor moves from the wirehouse world to an RIA," he says. "There's the freedom to serve clients in their own way. They don't have any more obligation to push certain products. They don't have quotas. It's personalized advice."

"Wirehouse advisors usually have large client bases. The big brand of the wirehouse lets them get a lot of clients, but that also limits the amount of personal attention that they can offer," Watson adds.

Arguably the most daunting challenge for new RIAs, Klumb says, is avoiding the growing pains of scale. Depending on how quickly that happens, an advisor can go from having a lot of time and no revenue, to having revenue and no time at all. The key, he says, is to have the right systems in place as they build equity in their business.

"They become accountable to themselves and no one else," he says. "Instead of simply collecting payouts, and being stuck in a structure where they may not have full ownership of their client relationships, they're building a business that has real value."