September 2, 2022 – As RIA leaders grow their firms, they inevitably come to an inflection point where they must decide whether to invest in a full-fledged centralized team or to outsource certain functions. It’s not so much “if” but “when” and “how.” No wealth management firm can scale without building out a centralized client service and operations function. Billing. Compliance. Technology. Human Resources. The list of essential functions goes on.

Many smaller wealth management firms have support staff (often one or two people) who act as generalists who essentially “do it all.” However, as client rosters grow, that sort of “jack of all trades” approach breaks down. For example, if a firm has 100 clients, and each client has 3-5 accounts, that represents potentially 300-500 accounts for a client support staff member to manage. That’s just not sustainable in the long run.

According to Vikram Chugh, Chief Operating Officer at Robertson Stephens, the inflection point for stand-alone RIAs and independent wealth managers generally occurs when they hit $200 to $300 million in assets under management (AUM). That is when a fleshed-out centralized team not only makes sense, but when decisions need to be made on what functions should be insourced.

“When trying to scale, building your own centralized infrastructure can be very beneficial, but also extremely expensive and time consuming. The human capital expenditure itself can be immense in a labor environment where top talent demands a premium in terms of pay, and that doesn’t include the expense of the physical space for them to work from,” Chugh says. “Add in training, ongoing people management and the inevitable turnover, and the costs really add up.”

It’s a lot to consider. Building out centralized functions is not a quick or easy fix. RIA founders should seriously consider, “What is my time horizon? How much do I want to invest in building this and managing it going forward?”

While pondering those questions, it’s helpful to have a full understanding of what a centralized team can look like:

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