Over the last several years, the registered investment advisor channel has become more professionalized and dominated by large, private equity-backed firms that have grown rapidly through mergers and acquisitions. Yet, some 88% of RIAs have fewer than 50 employees and a small amount of assets.
And as much talk as there is about the need for scale and growth in the wealth management space, advisory firms don’t have to be big to run successful businesses. There’s nothing wrong with starting from zero and creating a nice lifestyle practice with a limited number of clients, said small RIA executives, speaking at the Future Proof Festival in Huntington Beach, Calif., this week.
“Everybody says that scale matters. They’re like, ‘If you don’t scale, you can’t really run your business,’ and I just don’t think that’s true,” said Jason Ray, president and chief investment officer of Zenith Wealth Partners.
Small independent firms now have many tools at their disposal to help them run a business without scale, Ray said. He uses Altruist for custody, and said the firm helps open accounts in seconds. His company has tight workflows, and works with other RIAs for some of the business.
Ray founded the business in 2019, after leaving a large firm with $20 million account minimums.
“I couldn’t serve my family and friends, and that started to eat at me so much that it just became obvious that I had to start my own firm,” he said.
Zenith now has 10 employees, including seven advisors, and it leads with its own values and vision of a society in which race and gender don’t predetermine wealth.
Kevin Thompson, CEO and president of 9I Capital Group, a Fort Worth, Texas-based fee-only RIA, pointed out that there are many misnomers on social media about being a small firm, with many people emphasizing the dangers of not growing.
“You are doing just fine,” Thompson said. “There is no rule to this. There is no special formula to this. We’re all growing at our pace. Don’t ever feel like you’re not growing the way you need to grow.”
“You don’t need to be big,” agreed Andy Panko, owner and CCO of Tenon Financial. “Run your own race; do your own thing. That’s part of the beauty of having a small RIA—being nimble, being flexible, not just with tech, but who you want to serve, how you want to charge, what you want to do.”
Panko launched his New Jersey-based firm in 2019 as a virtual-only RIA. He came out of the corporate institutional banking space, so he had no book of business. He wanted to create the quintessential lifestyle practice, but got pushback from a mentor early on, who came from a large firm background.
“She’s like, ‘Why would you do that?’ And I said, ‘I want to serve a handful of clients well, enjoy my life, have a good balance of work and life and whatever.’ And she said, ‘You’re not going to serve clients properly if you’re small,’” Panko said. “If you get a big thing, business can start running you and consuming you.”
There are many advantages to staying small, he added. With a small firm, you can be more nimble and flexible. You can also control your own destiny to an extent.
“You can pivot; you change things, be it technology, be it who you work with, be it service offering, be it whatever,” Panko said. “That’s afforded to you by being small. If you want the lifestyle practice, don’t let anyone knock you for that.”
Ray said he has seen advantages in systems, people and culture.
“When you can stay small, your systems can be tight; you can oversee them, refine them a lot easier with feedback,” he said.
Regarding people, he said it can be hard to find those you can trust.
“The less you have, the less people there are to distrust and the easier it is for the leaders of the firm to pour into the training of those people,” he said.
Ray says Zenith has a great culture. Although they’re remote-first, they get together in person for retreats and other events. It’s a close-knit group, and they probably would not have that closeness were it not for being small.
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