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September 16, 2019 WHAT PRICE GROWTH? Independent advisory firms are growing by leaps and bounds. How fast is too fast? Top Independent Advisors Irena Grajic for Barron’s THE PUBLISHERS SALE OF THIS REPRINT DOES NOT CONSTITUTE OR IMPLY ANY ENDORSEMENT OR SPONSORSHIP OF ANY PRODUCT, SERVICE, COMPANY OR ORGANIZATION. Custom Reprints 800.843.0008 www.djreprints.com DO NOT EDIT OR ALTER REPRINT / REPRODUCTIONS NOT PERMITTED 56778 The Top 50 RIA Firms The largest independent advisory firms grew by more than 40% last year. With M&A only increasing, that growth is unlikely to slow anytime soon. N=not ranked. RANK 2019 2018 Firm Location Clients Advisors Offices States 1. 1. Edelman Financial Engines Sunnyvale, Calif. 1,210,000 310 178 49 (over please)

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September 16, 2019

WHAT PRICE

GROWTH?Independent advisory firms are growing by

leaps and bounds. How fast is too fast?

Top Independent Advisors

Irena

Gra

jic fo

r Barron’s

The Publisher’s sale Of This rePrinT DOes nOT COnsTiTuTe Or imPly any enDOrsemenT Or sPOnsOrshiP Of any PrODuCT, serviCe, COmPany Or OrganizaTiOn.Custom Reprints 800.843.0008 www.djreprints.com DO NOT EDIT OR ALTER REPRINT/REPRODUCTIONS NOT PERMITTED 56778

The Top 50 RIA FirmsThe largest independent advisory firms grew by more than 40% last year. With M&A only increasing, that growth is unlikely to slow anytime soon. N=not ranked.

RANK 2019 2018 Firm Location Clients Advisors Offices States

1. 1. Edelman Financial Engines Sunnyvale, Calif. 1,210,000 310 178 49

(over please)

The Top 50 RIA Firms

The following has been excerpted

By Steve Garmhausen

Opportunities and challenges as the industry consolidates—and what it means for average investors.

There’s a quest for scale that will let firms deliver a high-end client experience at a reasonable cost—but there’s also the possibility that growth outpaces a firm’s ability to handle the rate of change.

“One of the challenges high-growth firms face is that you need to be that much better at running an organization,” says David DeVoe, managing partner at San Francisco–based investment bank DeVoe & Co. “Firms moving into the high-growth space [should remember] the old mantra, ‘What got you here won’t get you there.’ “

The independent-advisory business is simultaneously growing and consolidat-ing. The number of significant deals has increased from 36 in 2013 to 99 in 2018, and 65 in the first half of 2019 alone, according to DeVoe & Co. At year end, there were 17,107 retail-focused RIA firms, collectively managing $4.8 trillion in assets, according to Cerulli Associates.

In recognition of this fact, Barron’s launched its Top RIA Firms ranking three

years ago, and this year we’ve expanded the ranking to 50 spots from last year’s 40.

The RIA industry’s growth has been driven by three streams—organic, acquisi-tions, and mergers and strategic partner-ships.

The industry’s merger mania is driven by the need to attain scale that will let RIAs cope with the rising cost and com-plexity of technology and compliance.

Mergers and acquisitions make sense on the surface: For starters, they clearly can benefit clients by bolstering a firm’s investing and financial-planning exper-tise, support staff, and client-facing tech-nology.

Mergers can create service redundancy for clients. Right now, the vast majority of independent advisors are solo practitioners who lack a plan for what happens to their clients when the advisor retires or other-wise quits a practice. When such advisors work within firms, the succession issue is more easily addressed.

Combined firms can also provide better career paths for young talent.

But mergers also are full of potential pitfalls. Integrating two businesses, each with its own culture, technology, workflow, and business structure, is a complex pro-cess fraught with potential friction, says David Canter, head of the RIA segment at Fidelity Clearing & Custody Solutions.

When it comes to growth, how fast is too fast? For clients, it all depends on the benchmark service level they’ve estab-lished with their advisor and their support team, says Canter. “Any break in respon-siveness, or failure to execute against an important task like tax-loss harvesting or managing a charitable donation,” can sig-nal that a firm has gotten over its skis, he says.

To avoid that scenario, the most suc-cessful firms start adding infrastructure well before they need all of the capacity, says DeVoe. That includes hiring more ad-visors, support staff, and compliance and even marketing officers. n

The 2019 Top 50 Independent Advisory Firm Ranking issued by Barron’s is qualitative and quantitative, including assets managed, the size and experience of teams, and the regulatory records of the advisers and firms. Firms elect to participate, but do not pay to be included in the ranking. Investor returns/experience are not considered. 2018 ranking refers to Edelman Financial Services, LLC. (EFS), which combined its advisory business in its entirety with Financial Engines Advisors L.L.C. (FEA) in November 2018. For the same survey, FEA received a precombination ranking of twelfth.