Average RIA’s assets, staff needs set to triple

The average registered investment adviser will see its staffing needs more than triple over the next five years, to 16 employees from five, according to a new study, an advance copy of which was provided to InvestmentNews by the sponsor, Pershing Advisor Solutions LLC.
SEP 10, 2007
The average registered investment adviser will see its staffing needs more than triple over the next five years, to 16 employees from five, according to a new study, an advance copy of which was provided to InvestmentNews by the sponsor, Pershing Advisor Solutions LLC. Such growth will cause the average RIA’s compensation costs, exclusive of owners’ pay, to skyrocket past $1.6 million from $532,200 and dramatically transform the composition of the average firm’s work force, according to the report from Seattle-based Moss Adams LLP being presented today at the Financial Planning Association conference in that city. By 2012, full-time employees in administrative, management, support and technical capacities will outnumber full-time financial advisers who work at a firm by a ratio of about 3-to-1, according to the report, “Fast Forward: The Advisory Firm of the Future,” which still is being written and will not be published until next month. Currently, the non-adviser to adviser ratio is about 3-to-2. Hard to fathom But though advisers find the study credible, its findings are hard to fathom on a gut level, some of them said. The changes all are expected to flow from the expected growth in average RIA assets under management — which figures to reach $1.6 billion by 2012 from about $500 million today. This finding was the key prediction made by “Uncharted Waters,” a Moss Adams study released last month by Jersey City, N.J.-based Pershing Advisor Solutions LLC [and first reported in the Aug. 13 issue of InvestmentNews]. “RIAs are going from adolescence into adulthood,” said Mark Tibergien, the Moss Adams managing partner who is presenting the “Fast Forward” study today. He is leaving the Seattle firm Oct. 1 to become chief executive for Pershing Advisor Solutions. “We’ve gone from five to 16 employees during the past three years, but I can’t imagine tripling again in the next three years,” said Colin Higgins, president of The Golub Group LLC in San Mateo, Calif., which grew from $180 million to $600 million in assets under management over the past three years. “That’s scary.” “That’s brilliant, because that’s precisely the point we’re trying to make,” said Philip Palaveev, senior consultant with Moss Adams. “Brace yourselves, guys, because that’s what you’re about to go through.” This growth promises to be wrenching for principals at RIA practices, because it is tantamount to a career switch, said Timothy Welsh, principal of Nexus Strategy LLC, a Larkspur, Calif., marketing consulting firm for RIAs. “Now [RIA principals] need to become much more of generalists, which they don’t want to be,” he said. “They’re being forced into becoming executives.” But the issue is even more complex, because accepting executive duties works only with a commitment to maintaining a smaller-firm culture, said Mike Steiner, a managing principal of RegentAtlantic Capital LLC, a Chatham, N.J., firm that has grown to $1.8 billion, from $400 million, over the past five years. “Now you have that many more partners and staff, and you will have to remember these people’s names and the names of their kids and their pets,” he said. “It’s all about keeping a friendly environment, and if you triple in size, that’s difficult to maintain,” Mr. Higgins agreed. “When you have 25 people — well, no family is that large, and eventually you can’t remember all the names,” Mr. Palaveev said. “You have to have more of an institutional culture, and that’s not a bad thing.” It is precisely this need for a cultural shift that inspired Mr. Tibergien to use the FPA’s conference as the springboard for his company’s release, he said. “The FPA is going to need to prepare the industry for this demand.” The FPA is prepared to hear Mr. Tibergien’s message and to take on the challenge it confers, said president-elect Mark Johannessen, who will take the reins as the organization’s president in January. “We’ll listen to [the presentation of the “Fast Forward” study] with wide-open ears,” he said. “As an association, if you don’t evolve, you’re going to become irrelevant.” The FPA already has begun to evolve, added Mr. Johannessen, who also is a managing director at Sullivan Bruyette Speros & Blayney Inc. of McLean, Va., which has 45 employees and more than $1.6 billion under management. “By coming to Seattle, advisers are going to see a lot of things that have been unfolding” — including a pre-conference Major Firms Symposium, preparations for a career fair and a practice management conference for March, he said. But advisers and overseers of the study concede that it’s hard to imagine that any number of career fairs could bridge the expected massive talent gap. But finding good people at all levels of the organization is no picnic, Golub Group’s Mr. Higgins said. “We’re having a hard time finding talent right now — including analysts, support people, everything,” he said. This is especially true on the high end, said Nicholas Gerber, co- president of Ameristock Corp. of Alameda, Calif. “There are some things you can’t offshore — not the people earning $150,000 or $200,000” in salary, he said. “They’re the people bringing in the clients. One strategy that has worked for RegentAtlantic is to spend more time and resources building a brand so that potential employees want to work for you, Mr. Steiner said. “You still don’t have the brand recognition of a SunGard [Data Systems Inc. of Wayne, Pa.] or Merrill Lynch [& Co. Inc. of New York], so it’s harder to attract employees,” he said.

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