RIAs: What You Need to Know about Wealth Management Consolidation

RIAs: What You Need to Know about Wealth Management Consolidation

As the landscape of the financial services industry continues to evolve, registered investment advisor (RIA) firms are experiencing a significant wave of consolidation in today’s competitive marketplace. This phenomenon has been fueled by various factors, such as technological advancements, changing regulations, and the quest for operational efficiency. 

On one hand, consolidation can offer independent RIAs access to economies of scale, a broader range of resources, and the ability to compete more effectively with larger players in the market. Conversely, the process of consolidation may also result in a loss of autonomy and potential conflicts of interest, which could potentially compromise the fiduciary responsibilities that define the core values of many RIA firms.

In this blog, we’ll dive deep into the world of RIA consolidation, exploring both the advantages and challenges it brings to the table. 

This article covers these topics :

  • What is wealth management consolidation?
  • Inflationary impacts of running your RIA today
  • Is now the time to consider selling your RIA?
  • A looming 2023 recession’s impact on your RIA

What Is Wealth Management Consolidation?

Wealth management consolidation is a process through which multiple financial service firms join forces to become one operations unit. This can involve mergers and acquisitions, or it can be a complete overhaul of an existing firm. Regardless of how it’s achieved, combining the resources of these firms can potentially result in better client services and maximized efficiency and profitability.

Consolidation offers several possible benefits for both a financial firm and its clients. From a cost-saving perspective, for example, it can facilitate achieving economies of scale through cost savings on staff, technology, insurance, and more. At the same time, consolidating sometimes helps larger firms by providing access to talent that may have been unavailable before. 

By combining teams with different areas of expertise, it’s possible to provide more comprehensive services. Consolidation can make it possible for smaller firms to expand their offerings, as well, by gaining access to new products, technology, and services previously unavailable to them. 

Of course, possible challenges can also occur, especially when mergers or acquisitions involve multiple companies coming together as one entity. These seldom have to be deal-breakers, but they do occasionally arise. It’s often wise, for instance, to ensure that everyone involved in the reorganization is comfortable with the terms outlined in the agreement.

All potential changes, including compensation structures or job roles for employees at each firm before the merger or acquisition takes place, should be factored in. Sometimes there are also issues related to compliance and regulatory requirements to resolve before consolidating operations can move forward. 

At the same time, communication between all stakeholders involved is essential. Keeping channels open can help ensure that minor questions don’t become serious problems. So, the more upfront your firm and the other parties are, the more likely your practice is to enter a merger or acquisition you won’t regret.

Inflationary Impacts of Running Your RIA Today

You probably have to tell a client every week (if not, at times, tell someone once a day): Inflation is an unavoidable fact of life. Thankfully, it doesn’t usually last forever, but while it rages, it can significantly impact the operations of an independent financial advisory firm. For RIA firms specifically, inflationary pressures may affect wages, office space rentals, and even some overhead costs.

Is Now the Time To Consider Selling Your RIA?

If a recession occurs in 2023, many industries may be negatively affected, including financial services. This means that right now could be the most ideal time for considering selling your firm, a fleeting window before the storm hits.

During market downturns and recessions, businesses tend to have less value than they would during economic prosperity. The same could occur to the value of your firm if the stock market enters a full-blown bear market. 

As much as we love saving money, we’re advisors, too—with our own families. That’s why we’re saying that waiting until a recession is here could potentially cost you valuable profits from your RIA’s sale. Selling while the economy is less contracted can make negotiating easier, if not a more pleasant experience. 

Thinking of Selling but Not Feeling Sure of Your Ability To Select the Right Buyer? Click Here.

A Looming 2023 Recession’s Impact on Your RIA

running your RIA

While we don’t have a crystal ball, the possibility of a recession is gaining momentum. What does this mean for independent RIA firms? 

A recession in 2023 could have significant impacts on registered investment advisors (RIAs), potentially leading to a challenging environment for their businesses. Amidst an economic downturn, market volatility is expected to increase, resulting in fluctuating asset values and reduced investor confidence. 

This may lead to clients withdrawing their investments or postponing new investments, negatively affecting RIAs’ assets under management (AUM) and subsequently, their revenue. The recession could also prompt investors to shift their preferences towards low-cost, passive investment strategies, exacerbating the competition between RIAs and robo-advisors. 

Furthermore, RIAs may face increased regulatory scrutiny and the need to adapt to changing industry standards as governments and regulatory bodies implement new measures to stabilize the economy. In this scenario, RIAs must be prepared to adapt their strategies and services to effectively navigate through the challenges posed by the recession, ensuring the sustainability and growth of their businesses, or consider selling their firm with a larger one.

If you’re considering the sale of your advisory practice, ViaWealth LLC is ready to meet with you, learn your firm’s culture, and discuss our partnership opportunities. Schedule a free appointment with us to find out more.

ViaWealth, LLC is a Registered Investment Adviser. Information in this article is for educational purposes only and is not intended to be an offer or solicitation for the sale or purchase of any specific securities or other types of investments. Investing in the securities markets involve risk of principal and unless otherwise stated, returns are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before making any financial decisions. Past performance is not indicative of future performance.

More about the author: Woody Rash

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