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'Tis the Season … for Partnerships and Acquisitions in the RIA Industry

The RIA market is one of the fastest-growing industry segments in the wealth management market in the United States (see Aite Group’s New Realties report). The RIA market growth has outpaced any other full-service business model for over a decade now. The fee-based nature of the RIA space paired with a fiduciary standard of care has made this market segment very attractive for breakaway brokers (i.e.,  financial advisors leaving large institutions), digital startups, custodians, and asset managers alike. Charles Schwab’s plans to acquire TD Ameritrade has also sparked an industry discussion around the changing nature of RIA custody.

While on the surface RIA practices are not unsimilar to the advisor practices that can be found at wirehouses—in fact, many of the large independent RIAs trace their roots back to a wirehouse—the fragmented nature of the RIA industry has created a technology ecosystem that is distinct from the one used by broker-dealer firms. Technology vendors and product providers that are enterprise sales oriented have typically struggled with gaining traction in this market. Successful market entries have often included mergers and acquisitions. A long string of deals has taken place over the years. Envestnet’s acquisition of Tamarac several years ago is just one example.

Large asset managers have set their eyes on conquering the RIA market as of late also. In the shadow of the Schwab/TDA deal, this week saw two announcements that should not go unnoticed:

  • BlackRock has struck a partnership with 55ip to for the purpose of supporting RIAs. The partnership facilitates a tax-aware transition of client portfolios into the models offered by BlackRock Model Portfolios over time and provides ongoing, automated tax management on the model. The platform will be co-branded by BlackRock and 55ip (see the press release).
  • BlackRock’s competitor Invesco went even further when it announced the acquisition of RedBlack Software (see the press release). RedBlack Software is one of the most mature rebalancing platforms in the RIA marketplace and is used by firms such as Ayco (the independent RIA owned by Goldman Sachs). Invesco also owns Jemstep, a digital wealth management startup, and sees the RedBlack Software acquisition as an expansion of its digital wealth business.

The RIA industry has come a long way since the early days—over 20 years ago—when the technology offering available to RIA firms was rather slim. These days, most digital startups are targeting the RIA market before considering a move to the large enterprise space. In addition, efforts such as the two outlined above will broaden the adoption of leading-edge technology offerings across the RIA market even further. A word of caution for asset managers, though: Independent RIAs are financial advisor practices that are fiercely independent. They value their independence when it comes to the choice of technology they use, as well as the products they offer their clients. Asset managers have to be careful not to fall into the trap of forcing their own product range through the technology platforms they own or partner with. RIAs will not go along for that sleigh ride.