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RIA Firms that Adopted Technology Grew AUM Faster in 2014

Posted by RIA in a Box

Jul 23, 2015 5:35:00 PM

Earlier this year, we surveyed over 1,000 registered investment adviser (RIA) firms about their operations, technology, and advisory fees charged, and then paired it with several different firm performance metrics. Much like this blog post, we found many insights with the results, all of which will be released in the upcoming weeks.  This first post takes a look at the data to answer the question: Are RIA firms that adopt technology growing at a faster pace than those that do not?

Now, more than ever, RIA firms have access to a long list of technology solutions tailored to solve problems unique to the investment adviser industry. The process of navigating the long list of options can be time-consuming, and if looking for some initial guidance, we recommend our blog post series titled How to Select Technology and Software for a New RIA Firm as a good starting point.

Download our free RIA Technology Infographic

To answer the question as to whether technology adoption is accelerating the growth of advisory firms, we separated our survey respondents into 3 categories:

  1. Firms implementing 0 technology systems.
  2. Firms implementing 1 technology system.
  3. Firms implementing 3+ technology systems.

In all three examples, technology systems were defined as customer relationship manager (CRM) systems, portfolio and reporting management systems, and financial planning software.

The chart below summarizes our findings. The blue column represents the percentage of firms in the category that experienced positive assets under management (AUM) growth during the 2014 calendar year and the red column represents the percentage of firms in the category that experienced negative AUM growth during the 2014 calendar year.

RIA firms that adopt technology growth rates

As to be expected, most investment adviser firms experienced growth in 2014 given the strong performance of the markets and the continued expansion of the overall investment adviser industry. However, the percentage of firms experiencing positive growth did vary depending on the number of technology systems utilized by the firm.

The percentage of firms in each category that experienced AUM growth in 2014 were:

  1. 0 Technology systems: 71%
  2. 1 Technology system: 82%
  3. 3+ Technology systems:  89%

While the above observations are helpful, they do not show the average growth rates for RIA firms in each technology adoption category. A deeper dive of the survey results further confirms that firms that adopt technology are not only more likely to experience positive AUM growth, but also are growing at faster rates compared to firms that do not adopt any technology systems.

Below are the average 2014 AUM growth rates for each technology adoption category:

  1. 0 Technology systems: 18%
  2. 1 Technology system: 27%
  3. 3+ Technology systems: 40%

While 2014 was undoubtedly a strong year for investment adviser AUM growth regardless of the rate of technology adoption, it’s evident that firms that made an aggressive investment in technology experienced significantly higher growth rates. In particular, firms that we consider to be aggressive adopters of technology defined as firms utilizing three or more technology systems, grew AUM more than twice as much as firms utilizing no technology systems.

Be sure to check back in the coming weeks as we release more sneak previews from our upcoming RIA industry report on growth, technology, investment styles, and advisory fees.

The Ten Critical Features of an RIA Technology System

Lexington Compliance and RIA in a Box LLC are not law firms, investment advisory firms, or CPA firms. Lexington Compliance and RIA in a Box LLC do not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

Topics: RIA Operations, RIA Technology

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