Key Points

• Trust services, digital advice platforms, and concierge/lifestyle services rank as the top-three areas of anticipated service expansion for RIAs.
  
  
• Strategic partners can support RIAs as they design a client segmentation strategy, tiered service structure, and competitive fee schedule.
  
  
• RIAs that pursue service expansion may find greater differentiation, but they will also likely wrestle with more challenging firm economics—rising costs and thinner profit margins.

Service Expansion

RIAs are the growth story of the decade, but it does not make them immune to competitive threats. RIA firms have begun to encounter differentiation challenges as distinctions among advisor business models further diminish. B2B digital advice platforms and HNW-oriented planning solutions emerge as that next competitive frontier. Service expansion into these areas is not a panacea, but it is an avenue that will become more common as RIAs counteract dilution of their value propositions.

By extending their service menu, RIA firms can also take advantage of burgeoning opportunities: investor demand for more advice, next-generation client connections, and democratization of access to services. Firms that pursue service expansion may find greater differentiation, but they will also likely wrestle with more challenging firm economics—rising costs and thinner profit margins. Trust services, digital advice platforms, and concierge/lifestyle services rank as the top-three areas of anticipated service expansion for RIAs. We examine each below.

The decision to add services is not a clear-cut one. RIAs will need guidance from their strategic partners to determine whether expansion is warranted and if so, how to profitably deliver these new services. Especially in the RIA channels—where each advisor determines their own process, marketing, and deliverables—there is significant opportunity to take a creative approach.

Opportunities for Strategic Partners, 2021

Work with RIAs to develop an ideal client profile, identify this investor segment’s financial priorities or common concerns, and select a service set to address those issues

Help RIAs conduct an assessment on any gaps between client needs and the firm’s existing service set

Build internal resources or establish partnerships with third-party providers that can facilitate the delivery of services, particularly for sub-scale RIAs

Support RIAs as they design a client segmentation strategy, tiered service structure, and competitive fee schedule

Collaborate with RIAs to evaluate profit margin pressures that may be reduced or eliminated:

• Overstaffing, causing bloated compensation expenses
• Redundant technology tools or underutilization of existing tech stack
• Ineffective processes or workflows, limiting revenue potential and advisor capacity
• Insourcing of non-core services that are more cost-effective if outsourced

1. Trust Services

Among RIAs that are expanding their service offerings over the next two years, 19% plan to add trust services. Trust vehicles are a common component of a wealth transfer strategy, ranging from a basic estate planning solution to a complex structure for minimizing taxation during wealth transfer. Trust services can serve as a critical tool for advisors when working with all clients, but particularly so when engaging in multi-generational planning for affluent and HNW households.

With the exception of some RIA consolidators and multi-billion-dollar enterprises, most RIA firms do not have the necessary capital or internal expertise (i.e., compliance and trust officers) to form a proprietary trust company—nor would they want to take on the increased liability and regulatory risk. As one RIA consolidator executive quips, “It’s not for the faint of heart.” For example, Moneta—the 10th largest RIA with $27 billion in AUM as of year-end 2020—is the latest to create its own trust company, Moneta Trust, for in-house trust services.

RIAs that are unwilling or unable to go through that process can work with a traditional trust company or partner with a platform, like Envestnet, to access trust and estate planning services. In 2021, Envestnet launched Envestnet Trust Services Exchange, powered by Trucendent, to facilitate the trust planning and administration process. RIAs now also have the option of working with an independent trust company (e.g., National Advisors Trust) as a third-party administrator that allows the advisor to retain more control over client assets.

2. Digital Advice Platform

Among RIAs that are expanding their service offerings over the next two years, 17% plan to add a digital advice platform. Pivoting away from their original positioning as B2C disruptors of traditional, human-driven wealth management, digital advice platforms have grown into a B2B tool for advisors who want to automate aspects of the investment management process.

This is particularly valuable as a means of profitably working with lower-balance clients or younger accumulators (i.e., HENRYs) that do not meet advisors’ minimum AUM requirements. According to 45% of practice management professionals, digital advice tools can be very effective when a practice wants to attract younger clients who are still accumulating assets. Likewise, 64% of practice management professionals find that digital advice programs are very effective when reducing the amount of time advisors spend servicing less profitable clients (see The Cerulli Report—Advisor Metrics 2021: Client Acquisition in the Digital Age).

As they consider wealth transfer implications for their firm, RIAs should evaluate digital advice platforms (e.g., Jemstep, AdvisorEngine, SigFig) as a powerful tool for next-generation investor engagement. Advisors can set up clients’ children or grandchildren with accounts, establishing a relationship early on without straining the practice’s capacity. As their financial needs mature, these next-generation clients can “graduate” to the firm’s full wealth management model.

3. Concierge and Lifestyle Services

Finally, among RIAs that are expanding their service offerings over the next two years, 16% percent plan to add concierge and lifestyle services. Concierge and lifestyle services represent a broad bucket of high-touch, personalized services that are typically offered by family offices to HNW and UHNW clientele. For example, these services could include private travel arrangement, watercraft or aircraft advisory, household management, bill pay, real estate services, and event planning or booking.

Nearly half (47%) of RIAs target mass-affluent clients with between $500,000 and $2 million of investable assets, making this level of personalization untenable for most firms. However, for firms working with a wealthier client base, concierge and lifestyle services are evocative of the family-office client experience.

Implementation

Lacking the centralized support systems of the B/D channels, RIA firms must decide whether to build internal infrastructure to deliver additional services or outsource—partially or fully—the process to a strategic partner. Smaller firms, which have less headcount and fewer resources, may be more inclined to outsource these support functions, as it can be more cost-effective to pay a provider than build it internally. However, advisors are not always eager to outsource, as it can feel antithetical to the independent nature of the RIA channels for them.

When outsourcing service support, RIAs’ preferences differ across service categories and provider types. For example, RIAs may look to their custodian or third-party provider for private banking and trust services, whereas they tend to seek support most commonly from asset managers for employer-sponsored retirement benefits consulting and investment manager due diligence.