Will Innovation Beat Consolidation in the RIA Space?

Two RIA dealmaking specialists duked it out Sunday at the inaugural Future Proof conference in Huntington Beach, California, before several hundred advisors and other attendees — revealing some critical insights about the state of the wealth management industry and where it is heading.

The debate featured David DeVoe, CEO and founder of the RIA consulting firm DeVoe & Co., and Brian Hamburger, CEO and president of MarketCounsel and chief counsel of the Hamburger Law Firm.

When asked when the 12 to 15 largest RIA acquirers may come to dominate the overall business — which includes nearly 15,000 investment advisory firms — Hamburger said: “They’re never going to get there because of the creative streak in the wealth management business and because of the low barriers to entry.”

Filing the required registration form with the Securities and Exchange Commission, for instance, is not very demanding, he explained.

In DeVoe’s view, there are about two dozen firms that he’s labeled “meta-acquirers.” They may be “reshaping RIA [industry] records, but they are not reshaping the industry — yet they are consolidating rapidly and are happy acquiring like crazy,” said.

These meta-acquirers, DeVoe says, are better than the average small RIA at managing client relationships.

He points to Edelman Financial Engines as a large firm that has spent roughly $10 million on technology to help produce client leads. It generated about 100,000 leads last year and has produced some 150,000 this year.

This large RIA “is doing things differently,” DeVoe explained, “and thus is able to grow as you can’t imagine.” (He referred to these growth strategies as “meta-techniques.”)

“I don’t buy it,” Hamburger responded. The large firms “may be doing more things right than the other firms, but the other firms are still nimble.”

In other words, the biggest RIAs are “enterprises and that means they take longer to develop innovation,” which should serve to limit further industry concentration, he said. Plus, the number of large acquirers likely will remain at 12 to 15, Hamburger stressed.