In the RIA space, rapid consolidation is driving firms to merge, acquire each other and seek larger partners. In 10 to 20 years, many predict a series of giant $100 billion-AUM firms will emerge to dominate the market.
But what about firms with less then $100 million in assets? Will they all be gobbled up, as some predict, or dwindle to an insignificant number?
One recruiting expert says he is confident that going forward smaller RIAs will not only survive, but thrive, even without the benefit of scale.
You can make a living at this business at different levels, said Danny Sarch, founder of executive search firm Leitner Sarch Consultants in White Plains, N.Y., which specializes in the financial services industry.
I question the big RIAs concept of economies of scale, he said. Will you get better pricing from scale and technologies? Yes. But [lack of scale] doesnt make it impossible to do business. If Im the client of that medium-sized business person, Im getting attention. Im getting a return. The custodian is trusted.
And competition among custodians makes their prices attractive and affordable even to smaller firms, Sarch said.
As the migration of advisors from wirehouses to the independent space continues, more small- to mid-size RIAs will continue their march into the market.
TD Ameritrade almost specializes in the small RIAs, Sarch said. They say, You dont have to be a mega shop. You can open a firm with $50 million, $60 million or $70 million.
At this size, he said, the hybrid business model will dominate, giving smaller firms the benefit of larger partners and income streams based on both fees and commissions.
You can go down to $50 million in assets, Sarch said. Thats still $500,000 in income, a nice living. And you could be doing a wonderful job for those clients Theres so much competition. Theres so much off-the-shelf technology. You could still make a decent profit for yourself. I still see the smaller firms continuing to proliferate.