Practice Management

RIA Industry Sees Stalling Organic Growth

Data provided by Fidelity shows organic growth among RIA firms dropped again in 2015; yet there is reluctance to take on major change in terms of pricing and value proposition.

By John Manganaro editors@strategic-i.com | December 15, 2016
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The 2016 Fidelity RIA Benchmarking Study outlines key challenges and opportunities for registered investment advisers (RIAs). Many independent advisers tell Fidelity their business is facing a period of unprecedented change, driven by numerous forces.

Among the more than 400 RIA firms surveyed, there is clearly a “persistent organic growth challenge,” Fidelity reports. Organic growth dropped to 6.7% in 2015, the lowest level in the last five years.

“In this context, firms have prioritized marketing and business development, but they lack a strategic focus on pricing, which may prove costly, “ Fidelity warns. “Median revenue yield dropped 4 basis points to 69 bps in 2015 after years of stability.”

Analysis of study results uncovered three key pricing myths that appear to be contributing to pricing inertia among RIAs, Fidelity says. First, many RIAs still believe traditional commission-based pricing models do not need to change because they have worked in the past; second, many RIAs mistakenly believe their pricing models are simple and easy to understand from the perspective of clients or partnering providers; finally, RIAs for the most part remain convinced their pricing models closely reflect the value provided.  

Fidelity warns that advisers cannot take any of these notions for granted. Yet only one in five firms regularly review their pricing models, and specific plans for change are limited. This is despite the fact that industry sales and compliance experts have warned that dramatic change is in store both due to the Department of Labor (DOL) fiduciary rule and general client interest in improved transparency.

“The tremendous variation in offerings and fee models across firms creates major challenges for investors interested in comparing RIAs,” Fidelity explains, noting that the top driver determining an RIA’s pricing approach should be “a deep understanding of value delivered.”

The Fidelity survey further suggests “there is a misalignment between offerings, pricing, and delivery …  Segmentation, unbundling, and use of minimum fees are key opportunities.”

NEXT: What RIAs are saying as 2016 closes