1 Large RIA firms become larger. Especially as founders of existing, smaller RIA firms continue to age and seek exit strategies. Some larger RIA firms will
merge. Other large RIAs will be bought out by private equity
investors. A few will go public.
But new small RIAs will be formed, due to the ongoing
entrepreneurial spirit of many investment advisors, paired
with their quick ability to adapt to new technologies, and the
continued development and emergence of high-quality software platforms for smaller RIAs.
2 Margins for RIA firms will be reduced. No surprise here. After reasonable officer compensation
is paid, expect margins to fall to 10%, from their current level
of about 20%, for wealth management firms.
3 Small RIA firms will eschew outsourcing portfolio management, but will begin to rely upon independent
consultants for investment strategy due diligence and
mutual fund/ETF/other pooled investment vehicle selection.
Paying an outside investment manager basis points to manage
a portfolio will diminish over time, when just mutual funds
and ETFs are utilized in portfolios.
Instead, smaller RIAs will begin to embrace independent
firms that provide research (for a flat fee each year) into
investment strategies, portfolio design, and investment
Independent and objective academic research and back-testing of investment strategies, with forward-thinking analysis applying predictions of the macro-economic environment
and incorporating testing for the impact of severely negative
macroeconomic events, will result in the expert portfolio strat-egy/product due diligence that many RIA firms need today.
The smaller RIAs will then implement those strategies themselves, aided by ever-better portfolio management software.
4 RIAs pay a fixed annual fee for access to custodial platforms, plus per-account fees.
This is inevitable as other sources of custodian income (
revenue sharing payments from funds, payment for order flow
and revenue from cash held in low-interest accounts) are
discontinued due to new legislation, regulation or enhanced
fiduciary due diligence.