Wealth management technology consultancy The Oasis Group and AdvisorEngine Portfolio Solutions on Tuesday announced a white paper exploring automation trends that they said are forcing RIAs managing between $100 million and $1 billion in assets under management (AUM) to restructure investment operations or risk strategic irrelevance.
The white paper, “Scale to Win: Examining the RIA Growth Model,” presents a framework for RIAs to overcome what the firms identify as an “operational paradox” that tends to stop growth.
The firms pointed to an RIA benchmarking study from Fidelity that found profitable firms had 25.7% overhead and served almost twice the number of clients per professional when compared with smaller RIAs, in which advisory expenses were 82% of revenue.
The firms said the combination of outsourced turnkey asset management programs (TAMPs) with platform automation serves as a “force multiplier.”
“Advisors don’t need to work harder; they should benefit from infrastructure that handles complexity without removing their judgment,” according to Rich Cancro, CEO of AdvisorEngine Portfolio Solutions. “We believe RIAs derive the highest value from serving clients well and developing and engaging with prospects.”
He added, “Our conviction is that advisors need modern tools, such as expert-developed investment capabilities, that free them from administrative work so they can focus instead on scaling and growing their businesses.”
Among the paper’s findings were that advisors outsourcing investment management could recover eight to nine hours of time per week, TAMPs can create significant cost efficiencies and modern infrastructure can allow independent firms to compete with aggregators.
“RIA success creates its own operational drag,” according to The Oasis Group. That is because, as firms add clients, principals “find themselves increasingly consumed by non-revenue-generating tasks” including portfolio rebalancing, trade execution and technology administration, the firm noted.
“The paradox compounds; each new client adds administrative load that current operating models absorb imperfectly,” according to John O’Connell, CEO of The Oasis Group. “Principals find they are not building a firm; they are buying time in six-month increments against a problem that requires a fundamental shift in the operating model.”
“The longer a firm delays operational restructuring, the narrower its strategic options become,” O’Connell warned. “You either build an operating model that scales, or you continue running one that trades operating inefficiency for the illusion of control.”
The white paper says, “Outsourcing and automation are not the same thing, and you need both. Outsourcing reassigns the investment operations work to specialists with better economics of scale. Automation removes the recurring operational work that grows back every quarter regardless of who manages the portfolios. The combined effect is a firm that can add clients without adding proportional overhead, which is the definition of scale.”
The white paper is the latest in a series of collaborations between The Oasis Group and AdvisorEngine Portfolio Solutions’ AdvisorEngine affiliate. Previous collaborations addressed the use cases, benefits and providers of AI tools for investment advisors.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jeff.berman@wealthsolutionsreport.com.
