Beyond consolidation, we are also seeing a widespread recognition of the value of integration and joining a national registered investment advisor firm that can offer more than a financial succession plan.

(Last Updated: August 2023)

For more than two decades, LLR has navigated the Financial Services industry, honing our investment focus on growing markets that reward talented entrepreneurs with differentiated business models.

Wealth management continues to be a core industry vertical, leading LLR to partner with exceptional businesses like Archer, YCharts, PCS Retirement and Ultimus Fund Solutions. Through our experience, we identified the Registered Investment Advisor (“RIA”) space as attractive for investment given strong business model fundamentals, underlying market tailwinds, and benefits that come with being part of a larger RIA platform, including working with a private equity capital partner to accelerate growth and increase scale through M&A.

We summarized our thoughts on the RIA market below and invited our executive network in wealth management to provide additional insights on key trends in the space.


Market Trends Driving Growth for Registered Investment Advisors

In the United States, RIAs manage more than $8 trillion in AUM, growing at an 18% CAGR over the last 5 years. The consistent AUM growth over the last decade is powered by two key themes:

RIAs Taking Market Share from Larger Wirehouses and Broker-Dealers:

RIAs’ share of AUM in the U.S. is increasing as advisors break away from larger wirehouses (e.g., Merrill Lynch) in favor of more autonomy and improved economics (no revenue share with parent) via the independent RIA model. RIA market share, as measured by total AUM, was projected to increase to 29% in 2022, up from 23% in 2017 and 17% in 2007, per Cerulli Associates.

“We saw a record number of advisors moving to independence in recent years. Advisors are attracted to operating within a more flexible and customizable business model that lets them better serve their clients and delivers superior economic rewards for their efforts.”

– Tom Bradley, Managing Director with Schwab Advisor Services. Former Senior Executive at TD Ameritrade and Former Board Member of LLR’s portfolio company, PCS Retirement.

Increasing Regulation in Favor of Independent, Fiduciary-Based Advisory Models:

According to a recent TD Ameritrade survey, increasing regulatory pressure on broker-dealers is one of the primary reasons advisors are leaving for RIAs. In addition, independent RIAs satisfy increasing investor demand for improved transparency via fee-based models and conflict-free advice.

“Over the past decade, investors have become aware of the differences between the fiduciary standard and financial advice that is in their “best interest.” Legal and regulatory headlines led the way, and mass advertising from firms like Schwab and Fisher Investments has reinforced this message. The train has left the station on fiduciary and investors will continue to demand unconflicted advice. They also will demand fee transparency at the investment and advisor levels. The independent fee-based RIA model will continue to win the day.”

– Matt Wolniewicz, President of Income America and a Board advisor to Prime Capital Investment. Former President of Fi360 and Head of Sales at Morningstar.


Strong Fundamental Business Model

RIAs benefit from high recurring revenue business models, deemed “Advice-as-a-Service,” with revenue primarily earned as a percentage of assets under management (“AUM”) and typically between 50 – 100 basis points with tiered pricing based on AUM thresholds. RIAs’ relationships with their clients tend to be very sticky and together with the long-term appreciation of the stock market, 100%+ net retention rates are customary. RIAs that can leverage the underlying, attractive business model and differentiate themselves from competition will find themselves well-positioned to capitalize on the growth of the market.

“Clients get the best of both worlds with a larger RIA – personal connections with an advisory team combined with the deeper resources of a larger firm that provide access to boutique investment managers, both traditional and alternative, as well as comprehensive planning capabilities. Advisors have more time to spend with clients when things like technology, compliance, human resources and operations are handled centrally with economies of scale.”

– Jill Steinberg, Managing Director and Partner at Beacon Pointe Advisors. Former Founder and President at Walden Capital Advisors (acquired by Beacon Pointe Advisors in 2017).

Benefits of Scale for RIAs

With roughly 17,000 RIA firms in the U.S. and about 16,000 of them with less than $1 billion in AUM, the market remains highly fragmented and operationally inefficient, particularly at the lower end of the market. This fragmentation creates tremendous opportunities, especially for smaller RIAs, to alleviate their own inefficiencies and optimize revenue generation by becoming part of a larger platform.

With a capital partner to support growth and increase scale through M&A, RIAs can realize cost savings on custodians, technology and other overhead. In addition, smaller RIAs that choose to be part of a larger platform often gain access to centralized, enterprise-level sales and marketing resources and back-office support that allow the advisor to focus on the client.

“Despite the recent surge of M&A activity in the RIA industry, we are still in the early innings of consolidation. Beyond consolidation, we are also seeing a widespread recognition of the value of integration and joining a national firm that can offer more than a financial succession plan.

An integrated RIA platform acquirer offers far more than cost synergies and buying power. It solves for meaningful enhancements to the client experience in expanded services, a proven marketing, and sales engine to drive organic growth and multiple opportunities for the talent of the acquired firm to grow their careers. The selling principals of RIAs want to see the value – not just for themselves but for their clients and team. The RIA platforms that deliver that value will be the ones who distinguish themselves as the new market leaders.”

– Dave Welling, CEO of Mercer Advisors ($30B+ RIA, completed over 45 acquisitions over the last 5 years) and current Board Member of LLR’s portfolio company, YCharts. Former Senior Executive at SS&C Advent, Black Diamond, Charles Schwab, and Bain & Company.

Here’s the Bottom Line.

With these exciting market trends, LLR is focused on partnering with RIAs to help accelerate their growth both organically and through M&A. LLR’s experience in the wealth management space and resources to support growth position us to be a value-add partner to RIAs looking to capitalize on these attractive industry dynamics.

For more, read our next post on common “Platform model” characteristics from RIAs that are prioritizing sustainable enterprise value and the potential resulting benefits: RIA Update: Building Enterprise Value through a Platform Model. 

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Learn more about the LLR team, relevant portfolio companies and our focus on investing in the RIA platform model.