RIA Sector Likely to Consolidate

(June 2) Rising costs of doing business, pressure on margins, and demographic changes are likely to benefit larger Registered Investment Advisor firms in the next few years, according to industry forecasts. The 19,000 RIA firms in the United States look to be increasingly dominated by perhaps 150 of the biggest firms, each of them with billions under management. The giants’ scales of operation may give them the market power to lower vendor pricing and further increase their advantage.

For investors this may be mixed news. One of the rising costs is the regulatory burden, which provides investor protections and lowers risk. Smaller RIA offices without the budget for a dedicated regulatory officer have been known to “self-regulate”. But if consolidation in this sector follows the pattern of other consumer financial businesses, fewer players may mean fewer choices for RIA clients.