The Registered Investment Advisor (RIA) aggregator market has truly blossomed over the past few years, showcasing a remarkable surge in activity with numerous key players stepping into the arena. Today, these RIA aggregators manage an impressive portfolio, with assets under management (AUM) exceeding $1.5 trillion. As they continue to expand, fueled by private equity and institutional capital, their influence is poised to grow even further. Within this bustling space, you’ll find familiar names like Dynasty Financial Partners, Focus Financial Partners, Hightower Advisors, and Mercer Advisors, along with a host of newer, niche-focused entities reshaping the industry landscape.
When it comes to how these firms operate, they each bring something unique to the table, prompting asset management firms to evaluate several critical aspects for every aggregator they consider partnering with.
First, let’s talk about structure. Each company’s organizational style can differ drastically. Some act as aggregators with semi-autonomous RIA practices, while others function as integrators that blend RIAs into a unified entity. There are also those that sit somewhere in the middle. Understanding a firm’s structure is crucial.
Next, there’s the matter of investment and portfolio support. It begs questions like, does the firm engage in manager research and due diligence? Do they curate product lists, offer CIO guidance, or produce model portfolios? If these services are available, what’s the size of their team, which asset classes do they cover, and how dependent are advisors on these services?
Then there’s technology support. Does the firm provide platforms or solutions for CRM systems, portfolio management software, financial planning tools, cybersecurity, compliance, and more? Plus, how much choice do advisors have in using other systems?
Finally, financial support is another pillar. Does the firm offer acquisition capital, debt financing, equity investments, growth capital, or succession planning? What do these offerings mean for growth objectives and the possibility of practice support from other avenues?
All these factors contribute to the complexity of choosing the right aggregator relationship and deciding where to invest time, capital, and resources. From our discussions with distribution leaders in the asset management industry, here are the top three queries we often encounter regarding the RIA aggregator landscape, along with some insights and thoughts.
Should national accounts teams focus on RIA aggregators? Well, based on recent surveys, three-quarters of asset managers affirm that their national accounts teams already cover at least one RIA aggregator. What’s more, half of these teams have added at least one aggregator to their “focus list.” So, it’s clear that national accounts should indeed allocate efforts to cover aggregators, perhaps more intensively than in previous years. We foresee that focus expanding even further, with asset managers reallocating resources from traditional relationships towards aggregators. Leveraging frameworks like the SS&C RADR can aid in assessing key performance indicators (KPIs) to determine whether an aggregator warrants additional capital or resource attention.
In terms of optimizing field sales to accommodate these growing aggregators, it’s noted that about 60% of asset managers already support a dedicated RIA wholesaling effort. Across firms with such teams, the average team comprises roughly 9.8 full-time equivalents (FTEs), according to our “Productivity Insights” research. While that’s a sizeable commitment, it remains modest compared to larger wholesaling teams. Looking ahead, we anticipate both the number of asset managers with dedicated RIA sales teams and the team sizes themselves to increase. Analyzing SS&C’s WalletShare for Mutual Funds data shows that companies with dedicated RIA teams exhibit greater sales productivity in the RIA market, justifying dedicated efforts. Coordinating between national accounts and sales and performing thorough segmentation will help national sales leaders effectively manage interactions with aggregators.
When it comes to managing relationship coverage amidst the many advisor breakaways, one thing is certain: change is constant. Each year, an estimated 10% to 20% of financial advisors switch firms. This represents significant movement, and for those operating in a cross-channel model, it’s typically manageable. Relationships usually stay intact with the wholesaler, except when geography changes complicate things. However, for firms in a channelized model with an RIA carve-out, these breakaway advisors can create friction, particularly as broker/dealer to RIA transitions increase.
Adapting to this ongoing friction requires a disciplined handoff process and appropriate incentives where handoffs make sense—although they aren’t always necessary. Some common industry practices include having RIA teams cover only advisors/teams surpassing a certain threshold, while hybrids stay “in-house.” Additionally, advisors shifting to aggregators who recruit primarily from larger firms often continue with the wholesaler they previously worked with.
In summary, the RIA aggregator market stands at a critical crossroads, offering both opportunities and obstacles. As aggregators hone their value and broaden their reach, they will play a pivotal role in the wealth management ecosystem. Asset managers must stay vigilant, ensuring prudent allocation of resources and capital both at the home office and in the field. Our research and data are here to guide firms aiming to thrive in this evolving market.
Interview with Karl Heckenberg of Constellation Wealth Capital
