Every Financial Advisor Operates Differently. Find a Good Fit.

(Illustration by Luke Brookes)

The way independent financial advisories are owned and operated can have important implications for investors. What to know.

Key Points

About This Summary

• The RIA industry is maturing, with the number of firms more than doubling between 2000 and 2024, and new ownership structures emerging.
• Independent advisor firms are structured in different ways, including advisor-owned, private equity-backed, and as part of larger networks.
• Each business model has pros and cons for advisors and clients, and investors should choose advisors whose models align with their goals.

The independent financial advice industry is maturing fast. The number of registered investment advisor, or RIA, firms more than doubled from 2000 to 2024, from 6,949 to 15,870, according to the Investment Adviser Association. And nine firms on our Top 100 RIA Firms list have gotten so big—each with more than $90 billion in assets and over 1,000 employees—that they are starting to look like national brokerage firms.

As the industry has grown, the ways these firms are owned and operated have become more diverse. This aspect of the business is rarely understood by clients, but can have important implications for them.

Twenty years ago, most independent RIA firms were owned and operated by their founders, who had broken away from big Wall Street brokerage firms in search of greater autonomy, fewer conflicts of interest, and higher compensation.

Plenty of these firms still exist, but advisors have embraced other ways of structuring their businesses. Some have sold their firms to “aggregators” that integrate them into networks of practices spanning regions or even the entire U.S. Some have established relationships with platform companies that simplify back-office functions, such as technology and payroll. Others are taking on private equity, swapping part of their ownership stake for capital they can use to add new services, make acquisitions, or cash out.

“The RIA model has been around since 1940, but in part thanks to evolving technology, several attractive affiliation options have emerged over the past 10 or 15 years,” says Brad Wales, founder of the consultancy Transition To RIA.

Here’s a look at how independent advisor firms are structured, including the pros and cons for clients:

Advisor‑Owned RIAs

Employee-owned RIA firms belong to the founding advisors, who may in turn offer employees equity stakes as a means of motivating them. Such firms provide advisors with full autonomy: They get to choose everything from their logo to the investments they offer. They can create their preferred culture—anything from workaholic to laid back. And they get to sell part or all of the business when they’re ready to move on. Clients of employee-owned RIAs may get a more consistent and personal experience because the firm’s owners have a deep incentive to deliver it.

That is the case at Truepoint Wealth Counsel, a Cincinnati-based RIA firm that manages $5.4 billion of client assets and created an employee equity plan nearly two decades ago.

“We have a deep philosophical belief that our clients are best served in the employee-owned model,” says Steve Condon, CEO of Truepoint. “It creates what we believe is the greatest alignment of interests: As shareholders in the firm, our professional reputation and our personal financial capital is on the line every day.”

The trade-off for employee-owned firms is that they may lack capital to hire new employees, upgrade technology, or offer the same breadth of services as larger firms. They may not be able to offer access to private investments, for instance, or provide a mobile app that aggregates all your data in one portal.

Also, it can also be difficult for a practice leader to find a successor who’s both worthy and able to buy the firm. Those haven’t been problems at Truepoint, but only because company founder Michael Chasnoff, who ranks 78th on Barron’s Top 100 Independent Advisors list, planned so far ahead. “If Michael hadn’t initiated this in 2007, we wouldn’t be in the position today where it’s a choice for us to remain employee owned,” Condon says.

Private Equity–Backed RIAs

Wealth management is a highly profitable industry, and its steady, fee-based revenue hasn’t been lost on private-equity players, who have invested billions of dollars in the space.

Private-equity shops like Clayton, Dubilier & Rice and Stone Point Capital target large advisory firms as well as aggregators. This type of firm wants to maximize the growth of its portfolio companies and often takes profits within a few years. Its involvement may or may not benefit end clients.

For advisors, private-equity partners provide capital that can allow them to convert some of their business ownership into cash without having to leave the company. Capital can also be spent on talent, technology, and acquiring other firms.

Elevation Point, a Minneapolis-based business that buys stakes of between 20% and 49% in firms, bakes acquisitions into its approach and looks to help partner firms strike deals, says CEO Jim Dickson.

Elevation is also a good example of how the industry is evolving: It invests in firms and offers them optional platform services like technology, digital marketing, family-office services, and access to alternative investments. “We take a minority stake in firms and then bring resources to help them improve but not change their client experience,” says Dickson.

One catch when going the private-equity route: Firm founders may feel pressure to ensure their new partners get a robust return on their investment, which can lead to overly rapid growth and deteriorating client service. On the other hand, clients may gain access to enhanced resources and services.

Partners of a Larger Network

When a group of advisors sets up an independent firm, their responsibilities extend beyond investment and planning advice. They’re in charge of everything from setting up technology to making sure they’re complying with industry regulations. That can make it appealing to work with a larger platform business that is set up to serve RIAs. The advisors retain full ownership and generally pay fees to the network, although compensation structures can vary. Examples of these platform businesses include Dynasty Financial Partners and Farther.

This model enables independent advisors to gain access to advanced technology, investment options, compliance support, and a range of services, which can simplify their jobs and free them to focus on serving existing clients and attracting new ones.

Some advisors, however, eventually bristle at being limited to the technology options or the investment menu the platform provides. “As the years pass,” says Wales of Transition To RIA, “some advisors say, ‘Hey couldn’t we do this in-house ourselves, have some more flexibility, and achieve better economics?’ ”

Clients, meanwhile, may appreciate benefits such as mobile apps and snazzy financial-planning tools that technology partners can provide. But wealthier households may find that their advisor isn’t able to get them into a certain private-equity fund because the platform hasn’t approved it.

Wealth Management Aggregators/Roll‑Ups

Aggregators, also known as RIA consolidators or roll-up firms, buy independent advisory firms to quickly build large networks. Often backed by private equity, they have spent billions of dollars amassing regional or national footprints. Joining an aggregator lets advisors offload business-management tasks such as human resources and regulatory compliance, gain access to technology, and cash out of the business they have built without leaving it.

Benefits to clients may include better pricing on certain investments as well as a greater range of capabilities, says Michael Nathanson, CEO of Focus Financial Partners, a New York City–based aggregator that owns Focus Partners Wealth, which ranks as our No. 9 Mega RIA. Focus’ “boutique at scale” model offers clients access to tax services, bookkeeping, insurance, sophisticated investments, and in-house trust services, Nathanson says.

One potential benefit of selling to an aggregator lies in the area of succession. The advisor industry is aging fast and, in many cases, successors aren’t available within employee-owned firms. Joining an aggregator can solve that problem, enabling advisors to gradually transfer clients to younger colleagues within the aggregator.

Clients may miss the personalized feel of an employee-owned practice, however. And trade-offs for advisors can include less decision-making autonomy—as the parent company sets policy, selects the technology, and in many cases requires centralized investment management.

Every independent advisory business model comes with pros and cons for advisors and clients. Finding the right fit depends on investors’ priorities, needs, and values. By asking the right questions and understanding the tradeoffs, investors can choose advisors whose business models best align with their goals.

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