Growth-minded RIAs with between $4 billion and $10 billion in AUM may not have the resources to compete with regional and national firms, but by strategically adopting tech products and processes they can turn their size into an advantage.
As midsize firms scale, routine tasks such as billing, reporting and tax-loss harvesting become increasingly complex. To sustain growth while maintaining excellent client service, these RIAs must invest in solutions that enhance operations and free up time for client acquisition.
While matching larger firms’ tech stack spend probably isn’t realistic, it’s not their only option. Instead, investing in solutions that fill specific gaps can enhance efficiency and help level the playing field.
Too much tech?
I’ve found that emerging RIAs can become overwhelmed by the numerous tech stack options on the market. To streamline their choices, I recommend that they comprehensively and objectively assess their business needs before ascertaining the right mix of software, process and product upgrades.
The most beneficial tools at this stage of firm growth relate to basics such as CRMs, billing, reporting and portfolio management; as they continue to scale, firms can add more complex applications.
READ MORE: Rethinking CRM: New tech entrants challenge advisors’ old platforms
I’ve also found that while big RIAs have obvious advantages when it comes to growth, midsize firms have the ability to scale more rapidly since they carry less “technical debt,” referring to short-term patches and workarounds that end up costing more in hours worked and results achieved compared to installing a needed system update. Because smaller firms often have fewer complex systems, exposure to this type of technological friction is minimized.
One RIA’s five-year plan
While some RIAs have the internal structure and capabilities to assess and deploy tech enhancements, others may benefit from consultants who can provide guidance, industry insights and realistic benchmarks for success.
An example is a $7 billion RIA in a southern state that hired our firm to create and implement an aggressive five-year growth plan. Together, we decided on tech stack enhancements including CRM optimization, a proprietary data strategy and a custom client portal.
Rather than add excessive long-term headcount to implement the changes, they used our consultants to automate manual processes, consolidate fragmented tech applications and build alternative investment workflows.
READ MORE: How a solo advisor taps tech for top efficiency: Show Me Your Stack
We assisted the firm in simplifying processes such as client onboarding and cash movement, refining them for scalability. This entailed automating routine tasks, such as follow-up reminders and appointments and standardizing advisor procedure prospecting and account opening. We also streamlined compliance functions as well as tracking and reporting for their alternative investment portfolios.
Replicable strategy
The results were impressive. The RIA increased its AUM from $7 billion to $17 billion in five years, with a 19% increase in five-year compound annual growth rate. Improved operating efficiencies, achieved with only a modest increase in non‐advisor staff, resulted in a headcount CAGR savings of 7.4%.
We estimate that the automated workflows freed up approximately three hours per advisor each week and that the unified client portal saved the business two hours per advisor per week.
By pairing the firm’s natural advantages with a well-executed tech strategy, this emerging RIA gained the ability to compete more closely with their larger competitors. I believe it’s a strategy that can be usefully replicated by growth-minded firms nationwide.
