Over the past 30 years, the fee-based RIA space has grown by leaps and bounds, from zero to close to $2 trillion in cumulative assets under management. That number is still dwarfed by the $9.3 trillion that research firm Cerulli & Associates estimates is in the hands of full-service brokerages, insurers, trust companies and banks. But the figures look poised to eventually flip as RIAs work to address their top challenges: boosting their efficiency, customizing their technology and differentiating themselves from the competition.

Top 50 Leaders

"Banks see the threat coming" from RIAs, says Jeffrey Thomasson, founder of Oxford Financial Group in Carmel, Ind., the second-largest RIA in the country and one of the fastest growing. Thomasson predicts a seismic shift if RIAs manage to increasingly professionalize and build businesses that can survive the demise of their founders. "It's like a tsunami. It's about 100 miles off the coast, but it's coming."

Financial Planning's comprehensive listings of the nation's top RIAs provide a snapshot of a profession in the throes of a dramatic sea change. If the experts' projections pan out, RIAs as a group will bulk up to as much as four or five times their current size. Chip Roame, managing partner at financial industry consulting firm Tiburon Strategic Advisors, believes their cumulative AUM will grow 12% a year, with much of that growth likely being fueled by influxes from brokerages and banks, as well as acquisitions.

The top firm on FP's list is GenSpring Family Offices in Palm Beach Gardens, Fla., which grew to nearly $17 billion in assets under management today from just $500 million in 2001. About half of that explosive growth came through acquisitions of smaller firms like Cymric Family Office Services in Costa Mesa, Calif., which managed $645 million when it was taken over in 2008.

In-depth interviews with a half-dozen of the top firms, smaller but fast-growing competitors and industry experts, reveal that the biggest challenges they face in staffing and efficiency all coalesce around the need to grow. "What's driving the growth is an increasing sophistication of affluent investors," says Michael Stolper, founder of the No. 3 firm, Veritable, in Newtown Square, Pa. "They want to work with a firm that is constantly on the prowl for the best and brightest solutions in the marketplace, and not just the products of one firm."

Top Challenges

The top challenge large firms face is a difficulty in attracting, retaining and cultivating staff. Grooming them to become the next generation of owners of their companies is also a problem.

"We have a Help Wanted ad that's out all the time and yet we've had very little success hiring experienced people," says David Lees, the senior partner of MyCIO in Philadelphia. "We can find people with a sales background or an accounting background only, but it's hard to find a good investment person who can speak financial planning." At No. 9 on the FP list, the firm counts 41 former and current corporate CEOs, chairmen and presidents among its clients.

As with most employers, bad hires can come at a steep price. Scott Wood, a co-founder of True North Advisors in Dallas, says he's made the mistake of hiring a couple of former broker-dealer employees who transitioned poorly to the lower-key RIA culture. One left the firm and took $300 million in client assets with him. With a bit more than $1 billion in assets under management, Wood and his company aren't on FP's Top 50 list. But as with his larger brethren, he's discovered that painful lessons can be part and parcel of the growth process.

Thomasson also learned the hard way. He says that he and his team devised a program to cultivate talent only after 10 to 15 years of trying and failing to perfect their people formula.

Good people cost money, as do good technology and compliance. Many RIAs cite efficiency as their second-biggest challenge. Differentiation is cited next. All RIAs want to persuade prospects that they offer a unique service. Often they do this by creating their own vehicles, from hedge funds to limited partnerships - to give clients access to investments they can't get anywhere else.

"We are currently working on some limited partnerships that we believe will provide many of our clients with better access to managers, in a diversified way at a lower cost," says Craig Rawlins, president of investment advisory services business of the No. 5 firm, Harris myCFO, in Chicago. Harris myCFO is using these partnerships to meet the $5 million to $10 million minimum investment requirements of several commodities fund managers.