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Defining the RIA Market

by Lauren

While Registered Investment Advisor (RIA) has a technical definition (an independent advisor with more than $25 million must register with the SEC as such), many asset managers struggle to define the overall RIA market.

Much of the confusion stems from how truly "independent" they are from outside influence, and how they function differently from other types of advisors. For example, while the number of RIAs steadily increases, a significant portion of advisors with the RIA designation are also closely tied to independent broker-dealers.

For market-segmenting purposes, kasina define RIAs as SEC-registered financial advisors that are not affiliated with a broker/dealer, other than for clearing purposes, and that provide fee-only services. There are approximately 9,000 RIA firms of this type, typically with only one or a few RIAs each. This type of RIA therefore has several defining characteristics, with implication for asset manager's Sales and Marketing teams:

• Business Ownership Responsibilities -- RIAs not only manage assets and client relationships, but all of the administrative and operational tasks required to run a business.
• Investment Knowledge and Sophistication -- RIAs are similar to institutional investors and broker/dealer research analysts in the quantitative and qualitative rigor and complexity of their investment approaches.
• Experience -- The average RIA has run his own firm for almost 17 years, making him well-versed in the investment world. Many RIAs first honed their financial planning skills at a wirehouse or independent broker/dealer before starting out on their own.
• Dispersion -- The branch office model used by many advisor conglomerates is nonexistent within the RIA space. While the largest RIA firms have many individual advisors, as a collective group RIAs are located and operate independently.
• Self-Perception -- RIAs define themselves as a distinct sector of the advisor community. While in many ways RIAs are like other types of advisors, the factors listed above fuel RIAs' belief that they are unique within the advisor universe.

Certainly, (and as kasina has previously discussed in its Six Segments report), selling and marketing to RIAs should be based first and foremost on behavior and then on their type. However, understanding how RIAs differ professionally from other advisors and types of advisors is the first step towards more effective product distribution.

For more information on selling and marketing to RIAs, check out our recent study, "Independent Thinking: Winning in the RIA Market."