RIAs come in different sizes. How do high net worth investors choose?

The full name of RIA is Registered Investment Advisor. It is a financial license issued by the U.S. Securities and Exchange Commission (SEC) to individuals and investment institutions engaged in investment consulting. Licensed individuals and institutions use their professional knowledge and experience to stand from the perspective of investors, safeguard the interests of investors, and accurately provide paid investment consulting advice, financial planning and asset management services to customers based on their risk preferences and tolerance. Balancing risks and returns and finding their golden section is the unremitting pursuit of every RIA investment advisor.

High-net-worth and non-high-net-worth investors are faced with more than 15,000 RIA investment advisory institutions and even more RIA individual investment advisors. How should they choose? Please continue reading.

According to data from the Investment Adviser Association (IAA), by 2023, the number of investment advisors registered with the Securities and Exchange Commission (SEC) will exceed 15,000. In addition, if state-registered institutions are included, the total number will exceed 33,000, with a huge capital scale of more than 114 trillion US dollars in assets under management.

However, there are more than 970,000 RIA investment advisors, and each person manages an average of 117.5 million US dollars, which does not seem to be very large. The key word here is “seems”. Compared with the fund industry, which usually starts with 20 million US dollars, the per capita management of nearly 180 million US dollars in the US investment advisory industry is very eye-catching.

The current situation of the US RIA investment advisory industry, I call it “head magnet effect and small and beautiful coexistence”. The top 7.38% of the 15,000 investment advisory institutions, or about 1,100 RIA investment advisory institutions, manage 88.02% of the $114 trillion in the market, or $100.3 trillion.

The growth rate of the asset size of these top giant RIA investment advisors in the past 10 years is the highest among all RIA investment advisory institutions, and the compound growth rate is said to be 10.1%.

We have a different view on this. On the one hand, the top investment advisory institutions do have a magnet effect. They use their brand influence and market position to continuously attract super high net worth individuals and clients such as pension funds and charitable funds, just like a magnet attracts iron. Another is that through mergers and acquisitions of peers, the growth rate of their asset size has been pushed up, giving people an illusion that “the bigger the bigger, the stronger the stronger”.

Why does We say this is an illusion? Because, on the other hand, the expansion of asset size is a rough development, which is external rather than endogenous. Once customers find that the situation is not right, they will vote with their feet and withdraw funds. The “big” and “scale” that the head institutions are proud of will shrink rapidly. Such examples are everywhere, whether it is the fund industry, the RIA investment advisory industry, or the fund investment advisory industry. For example, in 2022, the number of institutions with a management scale of more than one trillion yuan experienced the most serious decline, with a drop of 14.82%.

Under what circumstances should nearly 1 million people in the entire RIA investment advisory industry feel nervous and uneasy? Our answer is that the investment performance of the head institutions themselves is far better than that of the middle and tail players. It’s like saying that your parents or grandparents grow taller than you and your children. Isn’t it terrible? But wearing height-increasing shoes doesn’t count.

Basically, big institutions are just big, and they can’t get bigger and bigger!

The reason why small and beautiful is called small and beautiful is that each has its own expertise and market segments. The performance of small institutions and individual investment advisors is usually much better than that of large institutions. Basically, small institutions and individual investment advisors are responsible.

China’s investment advisory industry started around 2020, and has been developing for about 4 years, which is in the initial exploration stage. For details, please refer to “Chinese TAMP”

RIA investment advisors are large and small, with giants at the top and small and beautiful at the bottom. How do high-net-worth and non-high-net-worth investors choose, how to allocate their assets more effectively, find the golden ratio between risk and return, and maximize their own interests? Seeing this, We believe you have your own answer.