Hightower’s Bob Oros: RIA Rollups and the Future of Financial Advising

As the number of RIA firms marches higher, advisors are treading water in a sea of sameness.

Financial advisors know that not every person who uses that title has the same credentials, training, or fiduciary obligations in their clients’ best interest. But investors struggle to tell the difference.

“If you go out and look at 100 advisor websites, everybody says the same thing,” says Bob Oros, CEO of Hightower Advisors. “They talk about the same things, and they use the same words.”

RIA platforms like Hightower Advisors believe that consolidation tosses a life raft of differentiation in the cutthroat swarm of competition. Under Bob Oro’s tenure, the firm has acquired 52 registered investment advisor firms.

Today’s advisors need to evaluate their options. When should RIAs pursue mergers or acquisitions? As the business model changes, what does it take for an advisory firm to stand out?

Bob Oros took the stage at the Morningstar Investment Conference for a special live episode of Big Picture in Practice.

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In 2024, financial advisors likely feel sunny about their practices. When the market is up, assets under management are up, bolstering the bottom line. But that growth relies on the vicissitudes of incessant market cycles.

Bob and Hightower Advisors are seeking sustainable growth. That means more clients and a deeper wallet share.

For many mid-sized RIAs, growth can level off as they face a crisis of scale. Firms need funding to hire more advisors, bring in new clients, or invest in infrastructure. For smaller firms, the transition from advisor to business owner brings people management challenges. Many didn’t go into the field to deal with billing or payroll.

Across RIAs, the succession question also threatens the status quo. Bob says the average RIA principal has reached their early 60s, reaching retirement age and planning their exit.

“Advisors will start to choose what's next for them,” he says. “Is our industry ready for that?”

Independent practices might turn to an advisory platform to access the resources of a bigger firm, like human resources, marketing, and compliance. Since its inception, Hightower has grown to 140 affiliated advisory teams and manages $156.1 billion in total client assets. Hightower aims to add value for advisors and investors by bringing in more capabilities and delivering them more consistently.

Today’s firms must fight for clients against advisors with a growing body of services focused on financial well-being.

“There’s no doubt that clients are asking advisors to do more for them,” he says. “We want to create time as leverage. Let us do things that don’t offer you high value so you can translate that into productive time.”

In January 2020, Hightower rolled out the idea of “well-th.” The provocative new tagline sought to broaden the vision of financial advisor’s value. Through advisors on the Hightower platform, clients can tap into support on specialized topics, like trusts or accounting.

“Wealth is a lot more than a portfolio,” he explains. “Wealth is a lot more than beating a benchmark.”

Bob says that each year, many Hightower advisors sit down with clients to summarize everything they did to support that relationship. The exercise reminds clients of the value of their financial advisors.

Bob argues that advisors should consider charging higher fees given the sheer number of services they provide. “You should be paid for the value you’re bringing,” he says.

Bob says that RIA consolidators fall at different points on the “conformity curve.”

According to Bob, private-equity partners often sit at one end of the continuum. RIAs attract private-market investors with their stable recurring fees and long client relationships. These PE firms function more like investors and aren’t likely to change how firms do business.

“Private equity has been good for our industry because it’s forced us to mature and run businesses in a way that will create long-term sustainability,” Bob says. Consistency supports investors, and PE investments signal enduring support for the business.

But private equity isn’t right for all RIAs.

“Most RIAs are too small to take private equity because they want to put a reasonable amount of capital to work,” he says. “You have to be comfortable running your firm in a much more rigorous way.”

Other parent firms ask acquisitions to follow their processes and culture. Founders might resist that kind of change after spending decades cultivating their client relationships. Investors want advisors they know and trust.

Hightower lies somewhere in the middle. The platform registers with the SEC under one ADV. They assume back-office functions, like financial operations and human resources, but largely leave the client experience alone.

“The more disruption you create, the more potential risk you create in the business,” Bob says.

In 2011, only 10 RIAs had at least $10 billion in AUM. By 2023, that number soared to 258 firms, Investment Adviser Association data shows. Bob predicts more rollups at the top as the biggest players get bigger. He doesn’t rule out the possibility of a trillion-dollar RIA in the next two decades.

But consolidation hasn’t slowed industry fragmentation or stemmed the tide of new breakaways. While advisor headcount has steadied, Cerulli found that the number of RIAs has grown about 10.6% a year. Advisors need a way to compete in a crowded field.

“I think small advisors always have a place because you can run a practice with incredible efficiency,” he says. Small, nimble RIAs can outsource support services to other providers, or turn to new wealthtechs and expanding custodians.

But the challenges of scale won’t vanish anytime soon.