Market fluctuations have historically been a catalyst for transformation within the financial advisory industry, but change doesn’t stop there. Opportunities and threats also emerge from the complex interplay of regulations, trends, evolving customer expectations, and cost considerations. So, what’s influencing this industry today? In 2021, the head of Schwab Advisor Services, Bernie Clark, boldly stated, “The RIA industry is unstoppable.” These words have rung true as Registered Investment Advisors (RIAs) have experienced unprecedented growth in recent years. In 2022, assets under management surged by an impressive 19.5% year over year, accompanied by a substantial revenue increase of over 23%.
Yet, despite this remarkable growth, it’s important to note that the entire industry serves only about 1 percent of the population. A significant portion of the nation has yet to prioritize retirement and other services that financial advisors offer.
During this surge in growth, change is inevitable, especially as markets grapple with challenges and client demands and preferences continue to evolve. Forward-thinking RIAs, with their sights set on the future, are well-positioned to provide cutting-edge client services that not only meet evolving needs but also create a competitive advantage for driving new revenue streams.
In this article, we’ll delve into three key ways in which the RIA industry is navigating these changes, shedding light on the transformations shaping its trajectory.
Changing Client Demographics and Priorities
A new generation of clients is entering the wealth management space, but what they expect from the experience differs from previous generations. Over the next few decades, younger Americans are expected to inherit $30 trillion of wealth. And many of them will be bringing that wealth to RIAs.
Millennials and Gen Z have different life experiences than their predecessors, which comes through in everything from how they want to interact with advisors to their financial goals.
To connect with these younger clients, RIAs will likely need to adapt their client experience strategies. Younger investors tend to want both the convenience of technology as well as the “human touch” provided from working with an actual person. They probably won’t visit your office in-person, but that doesn’t mean they don’t want an active relationship with their advisor. With the growth of robo-advisors and other automatic investing tools, providing a strong, personalized relationship becomes a powerful competitive advantage.
Adapting to this industry trend requires getting to know new customers and expanding into new technology for marketing and onboarding, as well as new types of products and accounts. But RIAs that can build strong relationships with younger clients will set themselves up for incredible growth in the coming years.
Transitioning Advisors and Acquisitions
The past few years have seen more advisors move from larger firms to independent practices. The pandemic showed many financial services professionals that working from home is possible. That new mindset, paired with secure technology, has made it more cost-effective for advisors to move to an RIA or hybrid model. More than 1,600 advisors become RIAs annually, representing the fastest-growing category in wealth management since 2016.
Many RIA firms are now entirely virtual, which opens the possibilities for a diverse staff to meet the needs of clients across the country instead of being limited to who is in your geographic area.
With more advisors entering the RIA space and existing RIA firms transitioning to hybrid or remote models, mergers and acquisitions are also up. RIA M&A activity is reaching record highs (deal volume rose 11.1% in 2022) and creating more opportunities for solo or smaller RIAs to join forces with larger groups.
Advancements in AdvisorTech
As technology advances across other industries, it has also reached the RIA space. Successful RIAs are going digital and leveraging technology to streamline internal processes and provide a more robust client experience.
By embracing digital tools like online client portals and virtual meetings, RIAs can connect with clients in new ways and empower them to reach their financial goals. As discussed above, this digital growth is especially crucial for connecting with younger clients. Digital transformation has become a differentiator that matters to clients and helps advisors stay connected to provide personalized recommendations and advice.
Internally, digital tools help RIAs stay in compliance, especially as regulations change. By keeping documents organized and secure and streamlining processes like new client onboarding and account opening, technology allows RIAs to scale and expand their offerings. Instead of spending time on manual tasks, RIAs can now automate many tasks and focus on building client relationships and growing their business.
The RIA industry’s rapid evolution shows no signs of slowing down. This remarkable growth is poised to persist, especially for forward-thinking advisors who not only welcome change but also adapt to meet the evolving needs of both the market and clients. To stay ahead in this dynamic landscape, PreciseFP offers a transformative solution by digitizing the onboarding process. From streamlined client data gathering to convenient document gathering, it seamlessly integrates with your existing software suite. Discover how PreciseFP can elevate your practice by clicking here to learn more and take advantage of our 7-day free trial.
Chief Marketing Officer | Docupace
