As RIA firms grow and attract larger customers, $2 million in client AUM is the cut-off above which pricing rises favorably for RIAs, according to a new study.
In general, smaller firms may use competitive pricing as a means to grow aggressively, according to the authors of the study by Fidelity Institutional Wealth Services, which polled 308 RIA firms last spring.
The largest firms, those with at least $1 billion in AUM, demonstrate the strongest pricing power based on their asset management fees, according to the study. And at $2 million and above in AUM, fees for services rise consistently.
Conversely, firms with less than $100 million in AUM are using lower costs to compete.
There are several possible reasons for the pricing differential, the studys authors found:
- Larger, established firms increasingly leverage their brand reputation to set higher fees.
- Larger firms require additional resources to deliver the extra services offered as part of the overall investment management fee.
- Firms with far fewer high-net-worth clients may be willing to charge less to win bigger accounts.