Size Matters

My Twitter feed and email recently blew-up when the new Schwab RIA benchmarking survey data was released.  This response caught my attention because in my experience these reactions were usually caused by a survey release from Cerulli, Tiburon Strategic Advisors or Aite Group.  What was so unique about this year’s Schwab survey?  Is it the urban myth that size matters?  Let’s take a look.

Schwab survey

Schwab has a unique and dominant market share that facilitates and legitimizes their survey.  They talk to clients and get their real-world experiences.  This survey is not their first rodeo, it is their 11th Annual benchmarking survey.  Schwab knows the questions to ask and the lengthy survey proves it to clients.  My only problem with the survey is that it is self reported.  That works for dating websites but I wonder if that holds true for RIAs.

I complement the Schwab survey with data from two top practitioners.  My first stop is Michael Kitces and his podcast.  He is one of the tenured independent RIAs and uses social media to convey his message.  My other source is Josh Brown the master of leveraging social media through his tweets and blog.  Don’t fall into my initial trap of characterizing these men as a glorified financial planner (Kitces) or a bucket shop stock broker (Brown) Both have established firms that we ALL would be proud to call our own.

Spending your RIA scale dividend

As the survey shows size creates greater profits.  Each firm needs to decide how to spend their newfound money.  The easier decision is to keep it ourselves but easy usually doesn’t win the race.  I would recommend spending the excess profits on new professionals and better technology.  Professionals will allow the firms to continue to grow and survive for longer than the next liquidity event.  The right professional is expensive and usually not focused on immediate revenue.  Good technology is also not the cheapest solution but should be viewed through the lense of the client.  Clients don’t want screen-scraping technology and ultra high net worth clients would like reporting on their numerous alternative investments.  Something that your brand name competitors don’t and can’t provide.


What I have noticed is that numerous large wealth management firms have started to make the same mistakes as their previous firms.  They are building proprietary products.  Let’s leave the fund of funds and private equity deal access to the large financial services firms.  The margins are seductive but you can lose your independent trust dividend a lot easier than you think with proprietary products that don’t perform.

Size does matter but not for the obvious reasons.  Country music gets this right and Joe Nichols leads us on an inspiring journey that ends with being a good fiduciary.  We all need to get our minds out of the gutter and focus on how we can have a positive impact with the gifts clients and the independent fiduciary model have given us all.


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