The RIA Margin Squeeze: Why Profits Feel Tighter Despite Growing AUM

Even as assets under management and revenue climb, many RIAs are watching their margins get squeezed. In this episode, we unpack the RIA Paradox — exploding staff compensation, technology bloat, and rising compliance costs that are quietly eating into profitability. We explore why client service roles skyrocketed post-COVID, how to shift toward incentive-based pay, practical ways to clean up your tech stack, and how to build a proactive compliance system instead of treating it as a burden. Essential listening for RIA owners and leaders looking to protect and improve profitability in a maturing industry.

Disclaimer: 

Avidian Wealth Solutions is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. 

Avidian is neither a law firm nor an accounting firm, and no portion of its services should be construed as legal or accounting advice. 

Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

This information contained herein may be dated.

Transcript

Introduction: The RIA Margin Squeeze Explained

SPEAKER_01 0:06

So multi-office RAAs is, you know, this is the topic we're going to talk about and just dive right in today, Jim. You know, is it a scale advantage or a cultural disaster? So I think opening a second office feels like growth. The third feels like momentum, but by the fourth, you really might be managing politics instead of clients. With multi-office RAAs expanding rapidly throughout recruiting, tuck-ins, and liftouts, the real tension can be the scale, that scale can create enterprise value, or it can quietly fracture culture, margins, and brand.

SPEAKER_00 0:41

So I completely agree. I've seen many of my friends running RIAs run into this problem. The question is so when does multi-office growth become a strategic advantage? And when does it become an operational nightmare?

SPEAKER_01 0:54

Absolutely. I think really we have to start with the first main point, I

Rising Compensation Costs and the Post-COVID Shift

SPEAKER_01 0:59

think it's branding. I think brand inconsistency across locations becomes a big problem if you're not doing the same things in every different office location. And it really starts with, you know, we say brand, but the brand specifically can consist of how client experiences, what, you know, what that client is feeling when they have that phone call answered to operational security and stability and compliance and just consistency from a client experience to an operations to onboarding and so on and so forth. So, you know, if if clients are in two different offices and they experience two completely different um, you know, situations or two different firms essentially, you don't really have scale. You have fragmentation. So I think it's different advisors, different planning depth, different service models. And that inconsistency really can erode the brand equity and it complicates recruiting.

SPEAKER_00 1:51

So I'm gonna go down a rabbit hole just for a second. So there are RIA aggregators in which they tell the RIA, keep your brand, keep your identity, keep your website, you're just gonna DBA under us. And what I've seen is that doesn't work well for anybody because these firms don't really, you know, there's a lot of firms that don't operate well. They're small and they just don't operate efficiently. Um their brands are kind of unknown. Well, how do you pour all of your resources and effort into 20 different brands? You don't. Everybody's running their own thing, nothing really changes. And so none of them raise the level, raise the bar for the experience with the client. So I think the goal is when you do this, if you're either an independent RIA with multiple offices or your roll-up shop, you need to set the bar as high as possible with your policies, procedures, um, you know, your planning standards, your service model. Um, and if you do that, you can

Employee Benefits, EVP, and the Talent Arms Race

SPEAKER_00 2:47

hopefully drive some consistency and provide all the clients and prospects a better experience.

SPEAKER_01 2:52

Yeah, I agree. I think, you know, brand recognition can be the best thing or the worst thing, depending on what that brand is, right? You know, so I think it's I kind of laugh because when you say brands like Chick-fil-A, you immediately know the kind of client experience you're gonna get versus other franchises that one can be amazing and then the one 20 blocks or 20 miles on the road is awful. So I think the branding has a lot to do with it and the brand consistency. So it isn't fragmentated like everybody's running their own thing under, you know, a specific name. The brand really has to be consistent. So every office you walk into,

Incentive Pay and Variable Compensation Strategies

SPEAKER_01 3:26

you're you know you're gonna get the same client experience.

SPEAKER_00 3:28

You know, there's some things too that you don't necessarily see on the surface, I think, as a prospect walking into an office. So, you know, some firms provide the same level of service for all clients. Could be 200,000, could be 20 million. And they don't really have an idea around, well, we should segment, we should have more meetings, you know, we should have family governance discussions if necessary. They don't segment, including the way they price their offering, between those different service models. So what happens is that underlying all of that is an inefficient model where they can't service as many clients. You know, the the AUM of the revenue per FTE is lower and they can't get there because they don't understand this. So I think the clients will get a better experience, but also you see better results when they go through this exercise.

SPEAKER_01 4:17

Absolutely. I think, I think it really just overall the the brand uniformity does build the enterprise value at the end of the day.

SPEAKER_00 4:24

So, what are some of the actual items that that you can take to really sort of address this brand in consistency across multiple locations?

SPEAKER_01 4:32

Yeah, absolutely. I think the first thing you have to do is really to find what a standard client journey looks like from onboarding to review cadence to, you know, really your service standards. I think once you become very aligned on what that is, then you can implement specific things strategically in day-to-day that create that consistency. The second is document. I think you've got to document your firm's planning philosophy very clearly. Again, all of it has

Role Clarity, Delegation, and Fixing Org Chart Inefficiencies

SPEAKER_01 4:58

to be alignment across offices. Um, and then conduct a cross-office training quarterly just to make sure that you are reinforcing that culture, you know, whether it's two, four, five, seven offices, really kind of redefining and reinforcing the culture is there and aligned throughout the different um office spaces. And then I think you really have to kind of mystery shop your own offices, right? Everybody kind of remembers when mystery shoppers were a thing, right? And so I think a lot of that has to do with are you sending, you know, client reviews or or or client testimonial requests, you know, and what what does that look like? Are the clients getting the same experience or the same caliber of experience, same caliber of planning across the different locations?

SPEAKER_00 5:41

Yeah. So I would add one more to this, um, and maybe just sort of overriding, you got to make sure everyone's on board.

Technology Bloat, Redundancies, and Renegotiating Contracts

SPEAKER_00 5:48

So every employee in the firm needs to understand what these standards are, how you operate, and you have to retrain, probably on a quarterly basis. You've got to do this every meeting you're going to remind everybody of what those standards are. Here at Avidian, we have a group called the Culture Club. It's one of our leadership teams. And uh, you know, we'll run net promoter scores and um sort of try to understand what the client experience is, which helps you understand what the differences between the various offices might look like and if there's a problem. Um, well, let's go into another one of these, which is um one that, you know, we've worked hard when we do because we do acquisitions. And sometimes when you buy an RIA, um, it will come with other types of technology. Oftentimes there's overlap, but oftentimes there's not. And sometimes people love the technology that they currently have and they don't want to change. And what I see with some acquirers is that um you just have differentiation of the technology. So then there is no one standard. So then you don't know what the clients are receiving, but then on top of that, um, you're not driving efficiency.

SPEAKER_01 6:52

Right.

SPEAKER_00 6:53

So let's talk about technology fragmentation.

SPEAKER_01 6:55

Yeah, absolutely. I love this one. So I think a big lift that a lot of, especially through the MA process, that smaller RAs are getting or solo shops are getting when they join a, you know, a larger firm, say a Videan, is the technology bandwidth and the technology platforms and just overall, just the tech stack overhaul, you know. So I think that one of the things I will say is that when you are going through growth through the lift out and tuck-ins, it is very crucial to make sure that there is that understanding, like you said, with you know, the the culture and all of that, you have to be aligned

The Promise and Current Limitations of AI in RIAs

SPEAKER_01 7:37

on what that tech stack looks like. And, you know, at the end of the day, you might love your technology, but this is what we're gonna be using. So you have to be okay with it. You have to be okay with it. You can't have different firms essentially still acting like they're different. It ha everybody has to be on the same platforms, Tex Tex. And I think the other thing, and I see this so often, especially with the larger acquirers, they will have all of operations and all client service located out of one headquarters that is multiple, multiple states away. And then every solo office, essentially, in their multiple office locations, it's just advisors. And so I think it's crucial to definitely have a home place for operations compliance, um, you know, and and onboarding processes. But I do think it's still so crucial to have client service on site at every location and not just advisors to keep that consistency there. So you've got operations that are essentially out of one office, the main office, headquartered somewhere, to

Actionable Tech Stack Optimization (Workflow Audits)

SPEAKER_01 8:37

keep that alignment and then have the client service associates at every location to really help that operational and client service efficiency and alignment.

SPEAKER_00 8:45

Yeah. So what you're talking about is some of these mass aggregators that are just looking at the bottom line and they look at it and say, well, if I can just keep everybody in one office and not allow for any autonomy, which then we find out that a lot of firms that get acquired are not happy with that model.

SPEAKER_01 9:00

Right.

SPEAKER_00 9:01

Because again, they have no autonomy whatsoever. And it's driven by somebody in in an office that could be in some other city, several states away, and that becomes problematic as well.

SPEAKER_01 9:11

Absolutely. Because and I think that this kind of goes into a deeper problem. But when you're working in that way, in that manner, then there's no way you're gonna have alignment within the offices because how can somebody that's sitting states away essentially help with an operational efficiency that I'm having right now today? And there's so much red tape and so much capacity that they have operating from a different state. So I do think that it's crucial to have specific individuals in all these different offices that are helping with that said task, right? But I think ultimately it kind of goes back to again, integration's not a project, it's a leadership decision. Everybody has to be on board. It's the same CRM, it's the same,

The Growing Regulatory and Compliance Burden

SPEAKER_01 9:53

you know, workflow. Are we tracking it manually? Probably not. If you're, you know, obviously a 2026 future-based firm where you're trying to become more operational efficient, um, then you're probably not tracking it manually or shouldn't be. Um, but I think that that's something that I've seen a lot too, is a lot of these RAs that have owners and founders, they still, especially a lot of the investment management firms, or if you have investment management as one of the primary things, a lot is done manually. So understand when you're when you're joining a firm and you have that integration that those are the things that are going to change, but just know that they're changing for the better.

SPEAKER_00 10:30

Sometimes, yeah. Some of these big firms really want to have low-grade technology as it saves money. Right. So one of the things that we do here is that we will always analyze the technology of the firm that we're that's joining us. And we have a technology leadership team. And if, you know, the firm that's joining says this piece of technology is something you really need to take a look at, and here's why, we will. And so most of our tech stack has been built from firms that we've acquired. Because as they've shown us that there might be other ways to do it, we'll add it. If it's better, we'll do it.

SPEAKER_01 11:03

I mean, I think that that just speaks value. I mean, that's that's so valuable when you're looking. Because if you do love something, like I said earlier, right? If you you love your your tech stack or this, just understand it might change. But I love the fact that Avidian doesn't necessarily say, no, this is the way. It's how can we improve what we're doing? And if you love it, there's a reason. Let's look into it.

SPEAKER_00 11:22

Yeah. So inside actionable steps that they can take if uh if they want to make sure that there are other offices on board. So, first off, choose

Building a Compliance Operating System

SPEAKER_00 11:33

a single system technology, whatever it is, your CRM, your portfolio management system, your financial planning software. We use two systems, but only two for financial planning. Uh, mandate firm-wide tech standards. So, within those technologies, how are they going to be used? Build centralized operations support instead of duplicating staff across offices. Um, audit tech redundancies on a regular basis. And I would argue that, you know, once someone's on board, it's easier to um to ensure that that doesn't happen if all tech has to get approved through, say, a technology leadership team. So they'll look for redundancies. We went through an exercise several years ago, and it was amazing how many pieces of technology we were paying for, and it just got lost in the mix. You know, you were you were on sharefile and you moved box, but you forgot that you someone was still using sharefile, so you never cut it off. So then you realize you're paying for sharefile and box.

SPEAKER_01 12:29

Yeah, I think it's it really is crucial to have those kind of reviews and audits as you go and and make sure everybody is on the same because again, it having the same alignment of systems, platforms, policies, procedures, that that's the first key to creating alignment and consistency office to office.

SPEAKER_00 12:47

I would agree. So earlier you

90-Day Margin Defense Plan: Compensation, Tech & Compliance

SPEAKER_00 12:49

mentioned leadership. So let's talk about one of the other problems they run into is leadership dilution because you know, you've got a remote office. Well, that office uh might have been a team that had a leader who felt like they were a strong leader. And um now you've got the CEO of the parent company and the local office um maybe battling over leadership.

SPEAKER_01 13:12

Yeah, absolutely. And I think unfortunately, without the that clear governance, politics replace strategy. And it's it's becomes difficult as firms are expanding geographically. Essentially, authority in the decision making becomes unclear, can become unclear, especially if you're having lift outs or tuck-ins because you've got a founder that essentially has built their entire business, their legacy, if you will, the way that they've done it and had the autonomy to do so for years. And so this is when it can become difficult

Closing Thoughts: The Signal of Industry Maturation

SPEAKER_01 13:44

because essentially they want to do things the way they want to do it, and then the central leadership wants to do it the way they want to do it. And so I think that this actually goes back to really defining that you're making a good decision. I think if you're making the the choice and decision to tuck in to another firm, this is why it's so crucial to understand who the leader is, what that leadership team looks like, and ask, will I have a place? Do I have a place on leadership? And it's easier for that transition if there's leadership boards and opportunities for you still to have a voice, because then it makes it a little bit easier to feel like you do have your own autonomy, but essentially you're giving that that clear leadership to the localized or central office.

SPEAKER_00 14:30

Yeah. And I think that, you know, when you have these offices that that want more autonomy, um, I think there should be some to a degree. And you should know where those boundaries are and they should be clearly articulated. Um, you know, if there's too much autonomy, what we see we discuss is, you know, the brand gets diluted, profits go down, uh, you'll see growth slows. Um, and if it goes the other way where there's too much control, um, you know, staff can rebel and they can become unmotivated because you feel as though there's there's nothing that you could do without having to call the the the main office and ask for approval.

SPEAKER_01 15:07

Absolutely. And I've seen that. I've seen that happen in deals that I've actually essentially helped with two two of my clients that essentially merged in to two different states. Hard, it's difficult to align that. But that was one of the biggest downfalls of this office functioned this way, and they didn't necessarily have an office 100%. They were more hybrid, and then it and that creates uh you really have to be have very clear and defined boundaries. Um, and autonomy is good to a point, but I agree with you. It's it's kind of like it almost becomes tension between different offices if you have different expectations that are set.

SPEAKER_00 15:49

Yeah. And so I think that's where at the beginning you should have clear expectations. Um I know of one advisor who his firm was bought, and he wasn't clear on where the boundaries were, and their coffee maker broke. And he realized that he couldn't just replace the coffee maker. It's a nice one. He had to call and ask for approval. And they said no.

SPEAKER_01 16:11

Wow.

SPEAKER_00 16:11

So he couldn't replace the coffee maker in his office. Uh, they actually said no, you can get something cheaper. And that creates um a lot of tension.

SPEAKER_01 16:21

Yeah.

SPEAKER_00 16:22

And so unhappy advisors.

SPEAKER_01 16:24

I mean, I think coffee is is life. So I mean that's a big deal. So I think in terms of the the actionable items for this one and and to avoid that leadership dilution is really like we've been saying, you got to clarify the decision rights be between headquarters and the local offices. Um, and I I do agree that that starts when you're even courting a firm that you're thinking about becoming a part of. Um, you know, you got to create a partner council or executive committee with formal authority so that you have a place to play, that the different leaders within the different offices can come together and keep that alignment on a, you know, monthly, quarterly, yearly basis. Uh, define compensation and incentive alignment across offices. I mean, that's something we we didn't really touch on, but that is, again, so crucial, especially if you have offices in different cities, right? Because compensation market is very different in various cities. So it's understanding what that looks like and having very clear comp reviews to understand what the different markets look like, because a CSA might be making something different if they're sitting in California versus Houston or Minneapolis versus Florida. So I think it's really crucial to make sure you have that defined comp and that the incentive, I will say incentives are the same office to office. Um then, you know, again, hold holding those quarterly in-person leadership summits and I would even say making sure that there's at least one all in, you know, company-wide event that you're putting on to really just essentially seal that culture across the different various offices.

SPEAKER_00 17:59

Yeah, I would agree. And that's the purpose of our culture club, and I recommend everybody has one. Um, and you know, it's probably really important when you're doing acquisitions. So, you know, one way to expand is to take one of your advisors and they might say, Hey, I'd really always want to live in this other city. Can we pull a couple of members and go move move and open a new office? Probably the most consistency you're gonna get across platform and culture, they're just extending what you already have. But most of the time, I think probably 90% plus, um, it's done through acquisition. And sometimes you're growing fast, making a lot of acquisitions. And we did multiple deals um in Q1. So I think this one is kind of near and dear to our operation team heart. And that is uh, you know, the fatigue you have around integration because you've got a lot of different teams that are needing to switch um and these tuck ins. Well, let's back up. You know, it depends on the type of deal you're doing. So if you're doing a lift out um or a breakaway from either a warehouse or or another RIA, those are easier because they're lifting out completely and they have no technology they're bringing with them.

SPEAKER_01 19:08

Right.

SPEAKER_00 19:08

So they've got they've got to plug into your systems, whatever those are, and adapt your processes. It just really isn't a choice. So in that way, there's the transition challenges, uh, which are not easy, but you're lifting straight into your system and plugging straight in. If it's an RAA acquisition, they are coming with all their systems and technology. Most everyone these days does asset purchases. So they're not buying the legacy RAA. So it's a little easier to define within the purchase agreement that hey, you know, different systems. We're not buying your firm, we're just buying the revenue stream. So those two are a little different, but either way, they both create some integration fatigue.

SPEAKER_01 19:47

Mm-hmm. Absolutely. I think, you know, tuck ins often bring a different client demographic, different compensation models, different service expectations. So without that structured integration, moral declines and performance can slip. You know, I think ultimately you did make a good point. I think it's very different having an RAA that's saying, okay, we've been running solo for X amount of years and now we want to be a part of the team because it's succession planning, because we're at a wall and we really need help with operations and compliance and so on and so forth. But that does bring a whole nother set of, you know, essentially integration issues that at the end of the day, integrating culture is hard. It's hard. And when you have not the plug-in situation of breakaways, but you have a whole acquisition where you're you are integrating essentially a firm into your firm, what does that look like? And I think really, you know, the deal is only the beginning. Integration really determines the value and keeps the brand recognition where it needs to be.

SPEAKER_00 20:54

So some of the things I think that we've experienced that have helped with us are creating a 30, 60, 90 day integration. So we run all of those and then we do a six-month as well. So and these are detailed cant charts with uh I don't know, hundreds of rows addressing every single item. And they've all got to be checked off by the transition team. So I think that helps with integration. Um, aligning compensation. And in some instances, this has been very beneficial to some of their staff because we are not gonna let somebody transition over and remain at something that's wildly different from the rest of the staff. We'll we'll lift them. And we find from some of these smaller firms is they're just underpaying. So some folks have gotten big uh big raises out of these transitions, but we think it's the right thing to do. Communicate cultural expectations yearly and clearly. And I would argue, I know that's that's kind of the standard, but I would say that it should be more often than that. And we try to do it in the leadership teams, which meet monthly, and so we will reiterate um what those expectations are as we Our values and then assign a dedicated integration lead who is not the founder.

SPEAKER_01 22:06

I think that's a crucial part right there.

SPEAKER_00 22:09

So scale without integration, uh, discipline creates visible cracks, and you want to try to avoid that as much as possible.

SPEAKER_01 22:16

Absolutely. So, how do firms scale across locations without sacrificing identity or margin? I think that's, you know, we've we've touched on a lot of of good points here. But to wrap it all up, I think ultimately from the different and various points that we've made, you know, I think really, you know, problem one that we addressed, you know, you got to standardize the client experience across offices to protect that brand consistency. And I would even go a step further and say brand reputation. Um, I think it it creates years and years and a lot of work to establish a reputable brand and not so long to tarnish it. So that's that's really crucial. Um, and then essentially moving into the the next problem we discussed, you really simplify and centralize the technology and systems, platforms and partners and avoid that tech patchwork. Um, you know, you got to clarify governance and leadership authority, preventing that political friction. And lastly, treating integration as a strategic initiative and not an afterthought. I think when you're assigning ownership and timelines and creating roadmaps and expectations, that really is, you know, essential to every piece that we've talked about.

SPEAKER_00 23:30

I hope for anybody that is thinking about adding a new office or has recently done so or struggling with multi-offices, I hope this was a helpful discussion. Um, multi-office growth can multiply value or it can multiply complexity. So the difference isn't geography, it's governance.

SPEAKER_01 23:48

I could not agree more. And I think that this has been something that you all at Avideon have seen firsthand. So I really appreciate all of the key points you've made. I think you guys have done a really great job. Make sure you follow the podcast for more, share it with others, and we'll see you next time.