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For several years, the financial advice profession has been in an ongoing conversation about the future of small advisory firms. Namely, can they survive against larger competitors?
Just this past December at the MarketCounsel Summit in Miami, FL., Shirl Penny of Dynasty Financial Partners said that it will be increasingly hard for “lifestyle practices” to compete for clients against large national RIAs.
The phrase “lifestyle practice” is often used to describe smaller, boutique firms where the advisor-owner isn’t focused on growth. Or if they do want to grow, they’re incredibly intentional and take on new clients very carefully.
I don’t buy the narrative that small firms will find it hard to add new clients simply because of larger RIAs. And here's why.
Starbucks made boutique coffee shops stronger
We don’t have to look any further than everyone’s favorite coffee chain to know that there is, and always will be, room for both large national RIAs and boutique or lifestyle RIAs.
You can find a Starbucks on every corner no matter where you go in the world. But you can also find a local, family-owned, boutique coffee shop. One of my favorite local coffee joints has a pet goat that joins the diners. If you’re not careful, he’ll jump on your table and snatch your food.
Starbucks might be able to give me a consistent macchiato in every city I visit, but it can’t provide the unique, memorable, one-of-a-kind experience my local coffee shop does.
As Starbucks grew and obtained greater market share, it didn’t cause every local coffee shop to go out of business. That’s because it’s selling a different experience.
Large RIAs won’t cause small RIAs to go out of business for exactly the same reason: It’s all about the ability to choose the type of experience you want.
Some people want the efficiency of a national chain, but others want that local, homegrown feel that only a small company can deliver.
How small RIAs will continue to win
Large and small firms have inherent differences. National firms will beat small firms on things like enterprise value, multiples on transactions, and even technology costs by way of enterprise-level contracts that lower costs for more users.
