Personal Finance

Emerging RIA Trends to Watch

Rebecca Daves

We speak with Rebecca Daves, Consultant at Advisor Growth Strategies, about the emerging Registered Investment Advisor RIA trends and how artificial intelligence is impacting the industry. Daves also shares what the future of the RIA industry will look like.

What are some emerging RIA trends that can't be ignored?

Some of the emerging trends we see are around how advisory firms are addressing the tight labor market, and how they are focusing on their technology platforms. RIAs are addressing the current tight labor market in creative ways to attract and retain talent at the same time that many firms are approaching the M&A market as prospective buyers to acquire needed talent.

And like other businesses, RIAs are assessing their flexibility around remote work in order to attract talent in other geographies. Others are enhancing their incentives and benefits packages to remain competitive within the industry and with local competitors in other sectors.

We also can’t ignore the need for highly functional technology platforms with client and asset data all in one place. It is imperative that RIAs understand business data in order to stay competitive with large and growing integrators.

How is the rise of artificial intelligence impacting the industry?

AI is largely impacting institutional trading strategies as an expansion of algorithmic trading models. For the retail investor interested in these strategies, AI-enabled strategies are available through specific ETFs.

However, at this point, AI is not threatening the comprehensive wealth management space as so much of the advisor’s role is relationship management and is uniquely human. Human advisors customize plans to client specific needs, wants and objectives. AI may eventually assist advisors in technical aspects of their role (modeling a portfolio change, predictive client engagement processes) but AI outputs always require human interpretation, and so we see client facing components remaining with advisory teams.

What are some ways RIAs can connect with the next generation of clients?

RIAs can create specific offerings for the children and grandchildren of their current clients. Engaging younger generations with education and support around budgeting, home buying saving for kids’ education can be a compelling entry point to build relationships ahead of generational asset transfer events.

Connecting with next generation clients outside of current client networks often starts with having younger advisors on the team. Next gen clients tend to feel more comfortable with advisors who understand their current life stage. We have seen firms be successful in using online education – webinars or blog posts – to engage with prospective clients who are still in the accumulation phase.

Many firms are also expanding their offering to include one-off financial plans for next gen clients who have not yet reached the stage where they require full wealth management services.

What makes the next generation of clients unique?

Next generation clients are unique in that they look for high-tech solutions for investment management. Roboadvisors currently have over $250B in AUM, and their growth trajectory is not slowing. Surveys have demonstrated that the largest demographic of roboadvisor clients is wealthy millennials with over $500k of investable assets.

Advisors need to demonstrate value on the planning side in order to appeal to prospects who are comfortable utilizing low cost model portfolios available through online providers for their investments. Firms should also continue offering flexible meeting models and remote options for next gen clients who are used to connecting through technology and appreciate the efficiency that comes with it.

What does the future of the RIA industry look like? What does the next generation of RIAs look like?

The industry as a whole is getting younger, more diverse and even more tech-driven. In the future, the industry will serve a wider array of clients as technology enables scale.

The next generation of RIAs employ a team-based approach and are highly focused on the client experience. Many are outsourcing functions that don’t directly impact the client in order to free up capacity for prospecting and client relationship management. As technology and AI continue to develop, early adopters of enhanced technical processes and capabilities may attract a different ideal client and create additional scale in their process.

Why hasn’t the number of advisors been rising?

We’re seeing a large number of advisors retiring each year, and the trend is not slowing. Many new college grads are not looking to join an “eat what you kill” type of culture, and the wealth management industry is often perceived this way. There has been recent innovation supporting the newest generation of advisors – universities are now offering financial planning majors, internship programs are becoming more common at large RIAs, and organizations like BLX are focusing on the increasing the diversity of the industry. We feel these initiatives combined with the need for good financial advisors to keep up with demand will increase the hiring and development of young talent in the industry.

What are some common mistakes RIAs make when hiring and retaining the next generation of advisors?

To avoid common mistakes when recruiting and hiring the next generation of advisors, focus on your value proposition – why would they pick you over your competitors? In a tight labor market, RIAs run into trouble when they fail to update their offers, benefits, flexibility to match competitors or market trends. The biggest mistake impacting retention is not having a career path. Advisors want to understand how they can grow their careers – taking on more clients, developing business, and becoming partners. Firms who fail to illustrate the upside available to contributors are at risk of losing talented advisors to competitors who will incentivize and reward their productivity.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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