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03 December 2020

Unseating Conventional Wisdom

Is wealth management destined to become a consolidated industry?

It certainly seems so, with record M&A occurring – RIAs are buying each other, custodians are buying each other, and traditional asset managers are seeking out tech firms as merger partners.

As the investment supply chain is transformed by technology, the cost of investment products, services, and delivery is being driven down to zero. Efficiency and scale then makes sense as a strategic priority for everyone. But is size really an absolute requirement for the future of advisors?  Can small firms continue to survive and thrive? I believe the answer to both questions is yes, as the same technology innovation that drives consolidation can also be leveraged by firms of all sizes to stay relevant.

As a case in point, the professions of accounting and legal services remain very fragmented, with the majority of lawyers and CPAs working in small firms. Over 70% of lawyers work in a practice of 10 or fewer attorneys, with 48% working as solo entities.[1]  Over 99% of CPA firms have 20 or fewer people, and the majority of those actually have fewer than five on staff.[2]

After roughly 40 years as an industry, the advisory profession now looks the same. Of the approximately 39,000 total RIA firms in the industry, 60% of them manage under $50M in AUM, with only 5% handling over $1 billion.[3]  Additionally, as advisory firms have grown, so too have their minimums, most of which are now at $1 million or more – leaving a broad swath of investors underserved. Smaller firms are able to focus on that client segment free from competition from the national and regional dominators.

For smaller advisors to remain viable, independent, and competitive, it pays to have a strong technology partner – one that not only delivers great tools, but also has the depth of service, resources and financial stability to commit to clients for the long haul. When it comes to technology innovation as a disrupter, smaller firms can leverage tech providers as an extension of their team.  Consider Aspen Private Advisors, a $120mm AUM firm in Sioux Falls, SD. By selecting the Black Diamond® Wealth Platform, this firm has been able to turn their start up RIA into a highly profitable and growing entity.

According to next-generation advisors and Aspen founders Todd Dathe and Jeremy Sorenson:

“Aspen focuses on all aspects of financial planning for clients – basically if there is a financial thread for our clients, we want to be the go-to solution. To deliver on our business vision, we needed to build our technology stack from scratch, so we spent a lot of time researching and conducting due diligence of the various providers.”

Black Diamond’s healthy, advisor technology ecosystem enabled Aspen to find affordable solutions to be able to grow, compete, and succeed in a consolidating industry.  And by further leveraging SS&C tech, Aspen was provided with new ways to find efficiencies and cost savings.

“The CRM options we considered were hiring expensive customization consultants, or buying an off the rack package and doing the work ourselves. Neither of those options would work for us, so it was fantastic that we could tap into Salentica Elements™ and access Salesforce as part of the integration ecosystem within Black Diamond. They work together so well and that was key for us to get up and running quickly.”

From my experience, seamlessly connected and productivity enhancing integrations can serve small firms as well as large firms.  And, when you factor in the ability for small firms to easily work with clients across the country via the universal adoption of Zoom, they are no longer limited to their local geography both in terms of new clients as well as new advisors. 

The future is definitely bright for the RIA industry, especially for small firms who are connecting with people through technology.

If you would like to learn more about how the Black Diamond Wealth Platform can help your business, request a personalized demo today.