Rise of ‘middle office’ providers for RIAs

This is part three of a four-part series in which guest author Brad Wales, founder of Transition To RIA, makes four distinct predictions for the financial services industry and challenges readers to consider not just if, but when they will prove accurate. Read parts one and two.

My third prediction relates to the rise of “middle office” providers for registered investment advisory firms.

As I explain to almost every adviser I talk to, there are three main paths to the RIA model.

At one end of the spectrum is starting your own RIA and building out a network of service providers around it, such as a custodian, tech and compliance.

At the other end of the spectrum is joining an existing RIA platform where most or all these variables are already built out and provided to you. There are numerous flavors of this variety to choose from.

There are pros and cons to each approach. Among others, if you’re willing to start your own RIA and build your provider list, you will generally have better economics and flexibility than someone joining an existing platform, as well as the autonomy and control of formally owning your own RIA. The trade-offs: piecing the providers together yourself, perhaps not having the scale advantages that the existing RIA platforms can provide, being responsible for your own compliance, etc.

This brings us to the third option, which is the least known of the three.

Under this model, an adviser starts and owns their own RIA, but effectively outsources in one fell swoop a lot of the “middle office” responsibilities mentioned above. Custodial relationships, tech stack design and integration, client billing, TAMP solutions and marketing expertise are all bundled up and packaged for the adviser to utilize. It’s arguably a “best of both worlds” approach.

To oversimplify it build out everything yourself and pay 20 cents on the dollar to do so, or partner with us and use our already built-out solution (and scale/expertise) for 25 cents. Again, there are pros and cons to everything, but it’s a worthy option to consider.

There are now several “middle office” solution providers in the marketplace. Some cater to specific niche adviser profiles and some to advisers of different AUM size ranges. Further adding to the mix are TAMP solutions expanding their core asset management offerings to include additional outsourced tech and service components.

My prediction is that we will see an increase in the number of “middle office” models available in the marketplace. These new firms will cater to, or look to improve upon, the existing adviser profiles currently being served.

Put this all together and you have a growing ecosystem of solution providers to choose from that continue to increase the breadth and sophistication of their offerings. I predict this approach to transitioning to the RIA model will be the fastest-growing path in the years to come.

Takeaway: Will this prediction come true? If so, what timeline do you foresee for it?

Brad Wales is the founder of Transition To RIA, a consulting firm focused on helping established financial advisers understand everything there is to know about why and how to transition their practice to the RIA model.

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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.

Andrew Vincent
Andrew is half-human, half-gamer. He's also a science fiction author writing for BleeBot.
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