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How Many Millions AUM Do RIAs Need to Remain Competitive?

August 3, 2018

Increased competition and growing regulatory demands suggest that the RIA space is going to have a “shake-out” over the next 10 years —and firms will need much more than mere millions in assets under management to have the scale to compete. In fact, they’ll need $2 billion, according to a recent report from Dynasty Financial Partners and Advisor Growth Strategies cited by WealthManagement.com.

The study also found that regardless of size, RIAs were more profitable if they used shared services platforms, the web publication writes.

Dynasty — a services platform for RIAs, incidentally — and Advisor Growth Strategies, a consultant to wealth management firms, found that the benefits of shared platforms grew with the firm’s size. Firms using shared platforms with less than $3 million in revenue operated at a 55% margin; those generating $3 million to $5 million had a margin of 62% and firms with more than $5 million in revenue operated at a 64% margin, the study found, according to WealthManagement.com.

Aside from being a services platform for RIAs and suggesting that being on shared services platforms was a key to profitability, there was another way the survey may have been “a little self-serving,” as the web publication puts it.

The study found that firms on the Dynasty platform had an average margin of 62%, WealthManagement.com writes.

But the study also compared firms on Dynasty’s network to those polled by AGS, Pershing and Charles Schwab, according to the web publication.

The average margin at firms polled by AGS was 56%, and it was 58% at firms affiliated with Pershing and 48% at firms affiliated with Schwab, the study found, according to WealthManagement.com. But at 14%, Dynasty’s fees were higher than all three of the other firms, according to the report cited by the web publication.

By Alex Padalka
  • To read the Wealth Management article cited in this story, click here.