RIA Leaders 2021: Why ranking fee-only firms is difficult

September 27, 2021 10:00 AM

Wealth management’s fragmentation makes ranking and classifying fee-only RIAs a difficult and often controversial topic.

The lack of uniform standards governing exactly which RIAs are fee-only financial planning firms turns a simple listing of the companies with the most assets under management into an examination of the profession’s highest ideals and a probe of which boxes they check on the SEC’s Form ADV. As part of Financial Planning’s RIA Leaders rankings this year, some of the industry’s toughest critics and largest firms offered their input on the thorniest questions.

For one, some argue that restricting RIA lists to fee-only firms in itself leaves out many of the firms leading the industry’s shift from brokerage to advisory accounts. Others see dual registration as a dealbreaker and point out that, while some hybrid RIAs do quality planning, they’re not operating at all times under the industry’s strictest fiduciary standards. A third group finds the answers in Form ADV; a fourth faults regulators and the industry for the confusion.

Still others defy any grouping, much like retail-facing RIAs under the current regulatory structure and the corresponding identity crisis. To see how 10 industry heavyweights view the array of issues, scroll down through our slideshow.

Also, find the three other features of FP’s 2021 RIA Leaders issue: A piece exploring the problem with industry rankings; a PDF with the list of the top 150 fee-only financial planning firms gathered by compliance consultant RIA in a Box using FP’s criteria; and a profile of the No. 7 firm, a Silicon Valley family office with two notable billionaire clients.

Rachel Robasciotti

To the CEO of the San Francisco-based socially responsible investing firm, rankings spark a dilemma as to why the industry isn’t “optimizing what people want in the future” such as racial and economic equality or clean air and water, rather than celebrating the most AUM. The fact that it often takes “a certain amount of money” to be the client of a fee-only firm “just endlessly bothers” Robasciotti as a Black woman and lesbian, she said.

“There's so much about a fiduciary standard that works; what doesn't really work super well is the way that the financial industry is structured,” Robasciotti said. “I have this constant back and forth and tug of war.”

Peter Mallouk

The chief of the Overland Park, Kansas-based giant of the RIA world didn’t mince any words when asked about industry rankings. In short, they “have become a total joke,” Mallouk said in an email, describing the problem as one of publications trying “to differentiate themselves by creating criteria that manufacture various outcomes.”

“It’s all what you are trying to do,” Mallouk said of how best to draw the lines from a technical standpoint. “If you are trying to have a list of top firms, then focus on credentials, experience, organic growth (shows what people doing due diligence are selecting). If you are trying to do a list of firms that don’t sell investments on commission, then remove dually registered firms.”

Michael Kitces

The wealth management entrepreneur, Nerd’s Eye View blogger and podcast host took a characteristically detailed approach to the question of how to create a serious ranking of the largest fee-only RIAs. The answer, Kitces suggested in an email, lies within the multifaceted Item 5 of the SEC Form ADV, which asks RIAs for information about the size and nature of their advisory businesses.

“If you simply want ‘fee-only RIAs’ that are serving individual clients, I think the driving factor is really whether they check No. 2 on 5G (which is “portfolio management for individuals and/or small businesses”), and NOT No. 1 (which is “financial planning services”),” Kitces said.

Carolyn McClanahan

The outspoken physician and founder of the Jacksonville, Florida-based practice spoke of the disparity between RIAs that simply manage investments and those that provide “deep-dive planning” in areas like cash flow, tax strategy, estates and insurance. It bothers her that, for some RIAs, their “measure of success is how much money they're making,” McClanahan said.

“Everybody knows the majority of firms charge by assets under management, and so if you see someone with a big number you know they're making a lot of money,” she said. “Definitely financial advisors should be paid well. It's a lot of responsibility making sure that someone's not going to run out of money. Unfortunately a lot of people who call themselves financial planners are not really doing that work.”

Larry Gingrow

The Boston-based arm of asset manager Eaton Vance has “been under the radar,” but it’s also “very quietly growing at a rapid clip,” Gingrow said, noting its acquisition last year of a big RIA and substantial organic growth that has pushed its AUM over $14 billion. The firm has maintained the same structure under its current parent firm, Morgan Stanley. While it may have a different setup than most RIAs, Eaton Vance WaterOak and the other fee-only firms “would all feel very comfortable speaking to each other in the same language,” Gingrow said.

“We are a comprehensive wealth management firm,” he said. “We trace our heritage to the early days of the investment counsel business of the 1920s. My firm has been operating as the dedicated private wealth management arm of Eaton Vance for decades.”

Emlen Miles-Mattingly

The Madera, California-based advisor, host of the Minority Money Podcast and

co-founder of the BLatinX Internship Program

, spent more than a decade with brokerages before he launched his fee-only firm. Hybrid RIAs “absolutely” can do what’s best for clients, and Miles-Mattingly has no doubt that it’s possible not to “do what's best for people” as a fee-only firm, he said. Still, he and the other advisors who started their internship program this year limited the participants to fee-only firms, rather than including any dually registered practices.

“We just have to find a way as an industry to get the compensation more uniform — it's so crazy, you think about other industries and it's not like this,” Miles-Mattingly said. “The industry collectively needs to come together to figure out what we can do.”

Brian Holmes

The pioneering Los Angeles-based RIA opened in 1997, a time when “what seems like an obvious choice now was not such an obvious choice,” Holmes recalled. The firm has a broker-dealer affiliation with Advisor Group’s Royal Alliance Associates. About 2% of its $15.6 billion in client assets come from legacy insurance products, 529 plans and a few other kinds of commissionable business, Holmes said. For clients who need any kind of brokerage product, “it’s nice to be able to offer advice on it,” he said.

“One thing that could change everything is if FINRA and the SEC came up with fiduciary rules and standards that are the same across the board for everybody,” Holmes said. “We're all for servicing clients in a fiduciary manner, there's no question about that.”

Manish Khatta

Industry lists often end up as social media popularity contests or, worse, state in the fine print that firms pay for the privilege of making the rankings, according to the president of the Miami-based turnkey asset management program. Advisors may criticize rankings of the largest firms by their AUM, but they want to know who’s on it, Khatta said.

“No matter what anyone says, we care — we want to raise AUM, we want to be in the upper echelon,” Khatta said. “We're all here to help clients and also to make money. We want to do good work, but we also want to make money.”

David Bellaire

The Washington, D.C.-based trade and advocacy group counts more than 80 independent broker-dealers and almost 30,000 advisors affiliated with the firms as part of its membership. Any comprehensive listing should include firms registered as RIAs and broker-dealers in order to “take into account the current trends and shifts in the investment advisory industry,” Bellaire said in an emailed statement.

“There’s a growing shift in the industry to dual registration,” Bellaire said. “For many advisors, dual registration provides them with more options, equipping them with a broader array of services and products to choose from to best meet each client’s unique needs.”

Knut Rostad

A rigorous criteria for an industry ranking list would use the new Form CRS required under the SEC’s Regulation Best Interest to pick out which firms say they meet the fiduciary standard of care and describe its meaning, according to the president of the advocacy group based in McLean, Virginia. Doing so might help to lessen the impact of Reg BI, Rostad suggested.

“In this rulemaking, the SEC sought to further erase the appearance of substantive BD and IA differences,” he said in an email. “Required CRS language informs investors that the standard broker-dealers and investment advisers are required to meet is the same. This language is grossly misleading.”