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The $1 Billion Club Claims Bigger Slice of the Market

March 18, 2015

Reaching $1 billion in assets is considered a major milestone for independent RIAs. Topping that mark can provide enough scale to push money back into ambitious and potentially lucrative business-development projects without shaving profits too drastically, advisors who’ve reached this level of success tell InvestmentNews.

Fortunately, more RIAs are members of the $1 billion club than ever before. InvestmentNews says about 20% of those polled for its 2014 RIA survey were in this elite group. In 2004, only 3% qualified. “Just 10 years ago, people thought it was a big deal to get to $100 million in assets,” a Pershing executive tells the newspaper, putting the scale of recent growth in perspective.

How much of a competitive advantage can managing $1 billion or more provide to a financial-advice firm? InvestmentNews provides some interesting stats:

  • Since the financial crisis, annual revenues for these top producers have risen 23% a year. Those with less than $1 billion saw 15% average growth.
  • Clients tend to have about three times more of their total nest eggs at $1 billion firms than at smaller ones.
  • Not surprisingly, overhead takes less of a bite from their revenues, and the survey finds a whopping difference in average earnings — with a typical principal in this bracket making $841,580 a year, more than double that of a sub-$1 billion practice owner.

Still, reaching the $1 billion milestone isn’t always easy. In this bracket, bigger clients can wring fee breaks out of growth-hungry firms — whose top talent often demands top dollar for their services.

“If you’re at a billion, the goal should be how to get to $5 billion in assets and $25 million in revenue,” Joe Duran, CEO of United Capital in Newport Beach, Calif., tells InvestmentNews. To do that, he suggests shifting from a mind-set of a “doer” into one of a “thinker” who takes a more strategic approach to planning how a practice operates and refines its service niches.

By Murray Coleman
  • To read the InvestmentNews article cited in this story, click here (free registration required).