RIA Compliance and Practice Management Blog

RIA Industry Study: The Profile of Firms that Offer Financial Planning

Posted by RIA in a Box

Aug 29, 2016 8:30:00 AM

This is the fourth of a series of blog posts in the coming weeks that provide select insights from our 2015 Registered Investment Adviser (RIA) Industry Overview Report that will be released later this summer. This proprietary RIA in a Box study used detailed survey responses from 1,198 advisory firms paired with publicly accessible data provided on the Securities and Exchange (SEC) website.* The goal of this annual study is to understand different options that comprise each firm characteristic, and to determine whether specific characteristics affect the growth, size, or operational efficiency of an RIA firm. 

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Firms that Offer Financial Planning Services

While the majority of RIA firms offer traditional portfolio management services, many investment advisory firms hope to establish deeper client relationships by also providing additional services such as financial planning (FP). By offering financial planning services, RIA firms often look to offer more holistic wealth planning services to help clients meet their financial goals. Some advisors choose to include financial planning services as part of the standard investment advisory fee while others may charge separate financial planning fees.

Selected Observations From Our Survey 

  • More firms offer financial planning than do not, and the number is growing
  • RIAs that offer financial planning appear to grow assets under management (AUM) faster than those that do not
  • Firms that offer financial planning tend to have a significantly smaller average account size

RIA Firms that use passive portfolio management are more likely to offer financial planning services

One interesting observation from the above table is the significantly lower average account size for firms that offer financial planning compared to firms that do not offer financial planning. We believe there are two primary reasons for this discrepancy:

  1. There are some large RIA firms that do no offer financial planning that are likely more focused on institutional-type clients.
  2. Firms with smaller average client sizes may need to generate more revenue from other services such as financial planning in addition to traditional portfolio management services in order to reach proper profitability levels.

It is also interesting to note that firms that offer financial planning do not seem to charge a meaningfully different investment advisory fee compared to those that do not offer financial planning. This is a dynamic that will be further explored in future studies to better understand whether firms are more likely to charge separate financial planning fees or bundle such services as part of the overall investment advisory fee.

In general, we anticipate seeing an increasing percentage of firms offering financial planning as more firms look to offer holistic wealth management services as a competitive differentiator. 

Portfolio Management Style and the Likelihood to Provide Financial Planning Services

In addition, we observed that firms that use a passive portfolio management style are more likely to offer financial planning services:

Overview of Portfolio Management Styles for Investment Advisors that offer Financial Planning

Year over Year Observations

Last year, we reported that about 60% RIA firms that participated in our survey disclosed on their Form ADV Part 1 that the firm offered financial planning services. That number continued to creep up a bit this year to 63%:

63% of RIA Firms offer financial planning services

We also reported that firms that offered financial planning were more likely to experience exceptional AUM growth compared to firms that did not. The correlation with exceptional asset growth did not hold true this year, although overall, firms that offered financial planning services were slightly more likely to grow AUM:

AUM Growth Rates for RIA Firms that offer Financial Planning Services

Be sure to check out our previous posts from our most recent investment adviser industry study:

Note: As discussed above, the average investment advisory fee charged by the RIA firm may not include additional underlying investment manager or product fees. *Source: SEC and state investment adviser firm reports as of June 8, 2016 available on the SEC Investment Adviser Public Disclosure (IAPD) website.

How an RIA Firm Can Create a Culture of Compliance Checklist

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.

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