Loan Loss Reserves (LLR) has been navigating the Financial Services sector for more than 20 years, refining its focus on expanding areas that reward bright entrepreneurs with distinctive company models.
Since wealth management is still a major market segment, LLR has partnered with outstanding companies including Archer, YCharts, PCS Retirement, and Ultimus Fund Solutions. Due to the solid foundation of the Registered Investment Advisor (RIA) business model, the underlying market tailwinds, and the advantages of being a part of a larger RIA platform, such as working with a private equity capital partner to accelerate growth and increase scale through M&A, we determined that the RIA space is attractive for investment.
Over the past ten years, RIAs in the United States have managed more than $5 trillion in AUM, expanding at an 11 percent CAGR. As advisers depart from bigger wirehouses (like Merrill Lynch) in favor of greater autonomy and better economics (no revenue split with parent) via the independent RIA model, RIAs’ percentage of AUM in the U.S. is rising.
RIAs profit from “Advice-as-a-Service” business models with high recurring revenue that are primarily based on assets under management (“AUM”) and typically range from 60 to 100 basis points with tiered pricing based on AUM thresholds. Together with the stock market’s long-term growth and RIAs’ propensity for exceptionally sticky client relationships, 100%+ net retention rates are typical. RIAs that can capitalize on the underlying, alluring business model and set themselves apart from the competitors will be in a good position to benefit from the market’s expansion.
There are over 17,000 RIA firms in the United States, and 16,000 of them have less than $1 billion in AUM, so the market is still incredibly fragmented and inefficient from an operational standpoint, especially at the lower end of the market. Particularly for smaller RIAs, this fragmentation opens up a wealth of opportunity for them to improve their own inefficiencies and maximize income production by joining a larger platform.
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