Behind an RIA’s Decision to Build an In-House Investment Management Platform

By Verne Marble, Director of Business Development


RIA firms bring valuable resources to affiliated advisors, which is why many advisors choose to align with an established RIA versus starting their own. Some examples of these resources may include things like a compliance infrastructure, a defined technology stack, relationships with multiple custodians, practice management expertise, and perhaps an internal investment management platform (i.e., outsourced solution for advisors).

Private Advisor Group has historically delivered on all of the above, with the exception of an internal investment management platform, but not because we didn’t recognize the value provided by an outsourced solution. Rather, we have offered choice and discretion to our advisors relative to how they manage client portfolios. Some have chosen to use third-party-outsourced providers and platforms, while some have chosen to adopt a “rep-as-PM” approach and are delivering a high level of value by directly managing assets for their clients.  

Regardless of the process, we believe that there are very real and tangible benefits to outsourcing that all advisors should at least consider and that we evaluated when determining whether or not to build our own platform. For example:

Capacity Creation: according to a recent survey by AssetMark, three out of four advisors report that the biggest challenges they face are scaling their business for growth and spending time on business-building activities.[1] That same study also reported that 75% of advisors who outsource increased their time for building client relationships.[2] Additionally, and more relevant for the times we are in today, 66% of advisors who outsource wealth management functions were able to spend most or all of their time with clients during the pandemic-induced market volatility in 2020.[3]

Leveragability: an outsourced solution can be applied to specific client segments, account sizes, or investor demographics, which can enhance the ability of the advisor to capture and service clients that fall into these areas. 

Succession Planning Impact: Outsourced solutions can provide the potential for greater transferability during the implementation of a succession plan. This is because these solutions are easy for an acquirer to understand and adopt and the potential for client disruption is minimized.   

Lastly, in addition to weighing all of the data-driven and practical reasons for building an outsourced investment management platform, we also had some tangible business-driven reasons that aided in our decision-making.

  • Our advisors were asking for it
  • It would enhance our value proposition and would create a better alignment of interests with our advisors
  • It would aid in our business development/recruiting efforts

The Process

With the firm’s consensus to move forward in hand, we began our journey to build a platform that would provide the following tangible benefits to our advisors:

End to End Technology Experience

Our basic premise for building our platform is that we wanted our advisors to have a seamless, end-to-end technology experience, which would address/handle items such as: account profiling, account opening, model selection, custodian selection, trading, rebalancing, reporting, and account maintenance. Seems simple, right? Well, kind of, until you realize how many potential technology firms you can choose from. We talked to many of them, but operating under the principle of “let’s go deep with one” instead of line extending with more, we determined that our existing technology partner was more than capable of architecting our platform. So, instead of adding a new technology partner to our lineup, we simply challenged our current partner to do more with us. We have not been disappointed.

Sophisticated Yet Simple Investment Management Framework

One of the challenges facing advisors today is an abundance of choice when it comes to available models on any given investment platform, and in fact, many of these platforms have evolved into “supermarkets.” Our approach was be purposeful in our due diligence and to ensure that we did not unconsciously create complexity where it was not needed. Consequently, when evaluating potential asset management partners, we made our ultimate decisions based on the following criteria:

  • Maximum of four initial investment management partners – three providers in the ETF and mutual fund model space and one provider focused on direct indexing and tax optimization
  • Investment managers must have a proven history in the model management/delivery space
  • Investment managers must be open to creating bespoke models for Private Advisor Group
  • Investment managers must have an existing integrated relationship with our technology provider/partner
  • Investment managers must be able to provide sales and distribution support to supplement our internal capabilities

Multi-Custodial Options

As a multi-custody RIA, this decision point was a no-brainer for us. Standing up a multi-custody investment platform enables our advisors to deliver the same experience to their clients across custodians and allows them to operate efficiently and at scale. Furthermore, this provides optionality for those advisors who may have wanted to outsource, but didn’t or couldn’t, because of certain constraints at their preferred custodian.

Cost-Effective Solution

One of the main reasons advisors seem to shy away from outsourced investment management solutions is because of cost. In fact, concerns about high fees are cited as the leading reason 65% of advisors do not outsource investment management.[4] It’s a fair point, particularly when you consider the layers of fees that are involved – advisor’s fee, platform fee, transaction costs, strategist’s fee, custody fees, etc. In developing our platform, we knew the competitive pricing landscape and we also felt that we had certain advantages in terms of things we could control and the scale that we could leverage. First of all, and as established earlier in this article, we set out to build our investment platform to help our advisors, so delivering a quality platform at a reasonable cost was central to our objective. With that mindset, we were able to control costs in the following areas:

  • Size and scale allowed us to negotiate favorable pricing with our technology partner and our custody partners.
  • According to Blackrock, the expense ratio of an average advisor-managed portfolio is .54%. Given our fiduciary standing and focus on expense management, we have worked with our model providers to keep expense ratios very competitive relative to industry averages.
  • We have negotiated the elimination of strategist fees with our model providers.
  • We eliminate/avoid cost by not having to compensate a large team of sales and distribution professionals.
  • We are willing to make less in order to deliver more for our advisors.

Compliance and Governance

According to Wisdom Tree, 90% of advisors believe that third-party models can provide a defined process that will help with increasing regulatory scrutiny.[5] We would agree and find that those advisors who manage their own portfolios tend to not have a defined process, or if they do, they oftentimes stray from that process in order to accommodate clients. Consequently, this opens them up to more scrutiny from the regulators. Conversely, those advisors that have adopted an outsourced model management approach can stand behind the investment management approach of the model provider and point to the consistency of each client’s experience within a given level of risk.

At the enterprise level, Private Advisor Group has established a formal investment committee and investment policy framework to provide oversight of the investment management platform. Our advisors can be confident that the committee is continuously reviewing areas such as people, process, performance, and risk with respect to our portfolios and our investment management partners.

Where Are We and Next Steps

The journey that I alluded to at the beginning of this article has been some time in the making and has not been developed in isolation. We have solicited, received, and incorporated input and feedback from our Advisor Council, from trusted subject matter experts in the industry, and from our technology and investment management partners. We have previewed the platform to our advisors at our recent Annual Conference where many of our team members spent time in individual conversations with advisors excited to learn more and to gain access to the platform.

So, while we will never be completely “finished”, we are very close to releasing phase one of our investment platform and we cannot wait to see the reaction and adoption of our nationwide community of advisors. Stay tuned for more!






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