The Secrets of Firms with Over $1B in AUM

A white paper details how successful retirement advisers can take steps to push their practice to the next level—over $1 billion in assets under management.

How to reach and surpass $1 billion in assets under management is the focus of the latest white paper from the Alliance for RIAs (aRIA). The white paper, “6×6 = $1 Billion: Six RIAs Share Six Secrets to Achieve Scale,” identifies six challenges of practice management and specific ways the most successful aRIA member firms addressed them.

In 2009, there were 300 independent advisory firms with $1 billion AUM, according to aRIA. Today, the number is over 700 and seems to be growing at an accelerating rate. However, independent firms that have been successful may face new pressure from large firms with sophisticated capabilities. Advisers are challenged to either invest in their business, accept the status quo with the potential to be marginalized by larger players, or seek alternatives to their current state, including joining forces with other advisory firms.

The necessary evolution of the owner’s role in the firm is one key, according to the paper. Brent Brodeski, CEO of Savant Capital, examines an owner’s stages from player, to player/coach, to coach, to professional manager and finally to strategic owner.

This evolution is critical in becoming a billion-dollar firm, Brodeski says, and founding owners will first need to be willing to take on these stages. Next, they will need to determine if they’re capable of follow-through on the new roles. Some may find they’re not willing or able to. If not, they will need to seek outside talent to fill the roles, he says.

Brodeski draws on his own experiences. With an extensive background in financial services, he has experience shifting from an adviser to a strategic leader of a more formal company. Savant employs more than 100 advisers and staff members, and has multiple business lines.

Brodeski continues to work personally with a few clients, but the majority of his time is spent overseeing business management and realizing the firm’s strategic vision, which includes strategic planning, formulating a shared vision for the firm, acquisitions, high-level recruiting, serving as a firm spokesman and client experience.

The Right Fit

What is the right ownership structure for the firm? Ron Carson, CEO of Carson Wealth Management Group, finds a striking commonality among the aRIA firms: “They all have built ownership structures that have not only helped them achieve their growth objectives, but they have set their firms up for even more meaningful growth in the future,” he says.

The paper outlines nine best practices for expanding equity ownership within a firm, such as linking the owner’s equity plan to the firm’s strategic plan. “Without a strategic plan as a guiding tenant, an equity plan will not meet any objective other than diluting the founders’ ownership,” the paper warns.

Another recommendation is that an equity plan should be closely tied to firm-wide compensation systems. “This is especially true for advisory professionals who attract and retain revenue for a firm,” aRIA says. Equity grants should always be accretive to the founding members. Consider linking grants to growth goals and vesting schedules.

Designing growth-oriented compensation plans, investing in organizational talent and becoming a superior financial manager are also addressed. A top-10 list highlights best-in-class traits and abilities that advisers must master to achieve the correct growth trajectory, such as growth rates of at least 15% in year-over-year revenue; a clear and recognizable value proposition; and commitment to continuous improvement of the client experience and outcomes for clients.

The paper is a blueprint for getting to and growing beyond the billion-dollar plateau, according to John Furey, principal at Advisor Growth Strategies LLC and managing member of aRIA. He says the white paper drills more deeply than any previous paper aRIA has released. Furey cites the checklists, best practices lists and real-world examples as essential for anyone interested in expanding an independent advisory firm.

aRIA is a study and research group that comprises six RIA firms that collectively manage more than $20 billion in client assets.

The white paper, “6x6 = $1 Billion: Six RIAs Share Six Secrets to Achieve Scale,” is available free of charge via the aRIA website.