The thousands of small RIAs that have mushroomed across the country, however, will be hard-pressed in an environment of rising costs and aging baby boomer clients.
"It's getting much harder to be small in this industry," said Russell Hill, CEO of Halbert Hargrove, which has nine financial advisors managing $4.1 billion in assets. The company is ranked second on the CNBC list of top fee-only wealth management firms. "We haven't even hit the big increases in compliance costs yet."
Hill's firm is focused on the "low end of the high-net-worth market," he said, with the typical client having a couple of million dollars in assets. It advises several small endowments and foundations, as well as a few corporate retirement plans.
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Last year Halbert Hargrove launched a separate investment management consulting business targeting institutional clients that will share the firm's technology platform with the retail business.
"There are multiple paths to success in this industry, but the problems come when you try to straddle more than one," Hill said. "You can have a successful lifestyle practice, you can acquire other firms, or you can find a partner to help you grow, and the earlier you figure it out, the better your financial life will be."
The firms now trying to build capacity will face the most pressure, Rawdin explained. As they make the necessary investments in staff and technology, profits will fall and risks will increase.
"Those who stay small can continue to make a nice living, but they can't grow outside that band," he said, referring to firms with $100 million to $150 million in assets under management. "The midsize firms have to ask themselves [whether] they want to create all the systems that large RIAs already have and [whether] they have the expertise to execute mergers to grow."