Independent RIAs: Three Trends to Thrive

CFP® Certificants in the News

CFP Board reports in its March 24, 2022 article that “Registered investment advisor (RIA) firms are an important factor in the future of the financial planning profession…” The article discusses how three trends offer independents a path to continued growth including:

  • Hyper-specialization,
  • Increased personalization and
  • Digitalization.

The text in quotation marks below is taken from the article.

Hyper-Specialization

“Hyper-specialization is a firm’s ability to focus its practice on a niche set of clients who share a set of common needs. Hyper-specialization goes beyond serving broader client bases such as ‘clients over 55’ or ‘clients saving for their child’s education.’ Rather, financial planners who hyper-specialize hone in on smaller populations seeking more nuanced service, such as families with members who have special needs, military families, veterans, or divorced or widowed people.

Consumers are now expecting highly specialized, personalized experiences that are accessible and affordable. By leveraging technology to be hyper-efficient, advisors are able to systematize a highly specialized experience, serving clients more deeply, serving more clients or even serving smaller clients in ways they could not previously.

While the idea of offering hyper-specialized services to niche sectors of the population is not new nor is it specific to independent RIAs, the RIA business model may offer clients a variety of ways to engage with advisors and pay for the services they receive. 71% of consumers expect companies to deliver personalized interactions, and 76% are frustrated when the service fails to meet that standard.”

Increased Personalization

“Increased personalization is also driving growth within the financial planning profession. According to a 2021 McKinsey report about the power of personalization, 71% of consumers expect companies to deliver personalized interactions, and 76% are frustrated when the service fails to meet that standard. Companies that grow faster drive 40% more of their revenue from personalization than their slower-growing counterparts. As the market for financial advice has grown and clients have become more diversified, demands for further customization from advisors have increased.

One area where this personalization is a factor is with payment options. Independent RIAs are more likely to accommodate customer requests for payment flexibility than some larger competitors. Additionally, independent RIAs can charge AUM fees and offer investment advice without complying with the requirements of a larger broker-dealer. As an independent RIA, Todd Calamita, CFP®, who started his firm Calamita Wealth Management to specialize in retirement planning after over a decade working at larger financial institutions, says, ‘You can customize [your firm] to the way you want to do business and the types of clients you want to attract.’

Another example of the personalization effect is in the pairing of clients and advisors, and the ability for advisors to attract like-minded clients. Independent RIAs may not have the nationwide brand recognition of larger firms. Because of this, financial planners at independent RIAs have an opportunity to rely on their own individual brands and personal approach to connect with clients. While these factors are also essential for winning business at a larger broker-dealer, it’s very crucial and a great opportunity for financial planners at independent RIAs.”

Digitalization

“Digitalization is an additional trend in which clients have become more comfortable with remote interaction, further expanding the opportunity to build a larger, specialized client base. Calamita attributes this to modern technology. Widespread adoption of teleconference technology allows financial planners with hyper-specialized target audiences to gain a national audience and client base. Clients are much more comfortable and confident conducting business and receiving services online.

This allows hyper-specialized firms to serve clients from all over the country and promote their individual advisors with expertise in these specialized areas; they can therefore stay within their niches, rather than being limited to tailoring their focus to a particular geographic area. Many advisors point out that maintaining relationships with clients who move to new locations or change states has become easier, as they tend to stay with their current advisors instead of switching to new local advisors.

‘With technology, you don’t have to choose between scalability and specialization,’ Bogan rejoices. However, while technological advances present more options for advisors and clients to work together despite geographical distances, Calamita adds that, ‘Clients are predominantly still looking for people locally.’ ”

Summary

One takeaway from the captioned article is this—despite continued mergers and acquisitions in the RIA space, savvy independents can not only survive but thrive by embracing creative strategies such as hyper-specialization, increased personalization, and digitization.