Many RIA principals are focused on a supposedly magic benchmark: $1 billion in AUM. You've probably heard other RIA principals preface statements with phrases like, "If I can just get to $1 billion," or "When I get to $1 billion ..."

To me, it all sounds a little too familiar. Back in 2000, though, the magic number was $100 million: An RIA with $100 million in AUM was considered large and successful; perhaps that firm had even met the magical goal of "scale."

Now, of course, that same $100 million is considered a small firm by most industry participants -- and even by informed members of the public.  Yet how many RIAs starting out in 2000 were focused chiefly on reaching $100 million?

Bottom line: There are more important aspects to your business than your AUM number, which may seem less impressive in the years ahead.


Rather than focusing predominantly on AUM, firms should concentrate on a high-quality business that attracts and serves clients. Many $1 billion firms are running an undifferentiated, commoditized service that -- if it hasn't already -- will start to feel pressure to maintain current fee levels. Other firms have simply underpriced their services to grow, and are not generating the appropriate revenues needed to be successful in the long term.

Regardless of asset size, these businesses will struggle to compete and survive in the future. If advisors fail to produce a valuable and differentiated service environment for clients, they will certainly not be able to price their services at a level that generates attractive revenues.

Focusing instead on the client experience, rather than AUM, allows a firm to price its services at a level that generates attractive revenues. Simply put: Premium service leads to premium pricing.


Equally important to the top-line business performance is what is done with the bottom line.

It’s common for the bottom line of an independent wealth management firm to become the take-home pay of the owners. In situations such as this, there is no such thing as "free cash flow," because the firm's owners have staked a personal claim on every dollar each year.

The result is a lack of reinvestment in the firm, and thus a business that becomes less appealing to both the end client and the best professional talent in the marketplace. At some point, the business peaks, then levels out and begins a steady decline.

It is critically important for firms that want to reach and exceed $1 billion in assets to budget for reinvestment each year. Investing capital into systems, processes and people will allow the business to remain viable and competitive for new clients.

Real growth, as defined by net new clients and assets, is the key to a strong business in the long term.

Matt Cooper is president of Beacon Pointe Wealth Advisors in Newport Beach, Calif.

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