{"id":54,"date":"2026-07-02T22:20:04","date_gmt":"2026-07-02T22:20:04","guid":{"rendered":"https:\/\/persistenthedge.com\/?p=54"},"modified":"2026-07-30T04:43:04","modified_gmt":"2026-07-30T04:43:04","slug":"the-economics-of-advice","status":"publish","type":"post","link":"https:\/\/persistenthedge.com\/?p=54","title":{"rendered":"The Economics of Advice"},"content":{"rendered":"\n

While I was at Brown Advisory, I remember Mike Hankin, the firm\u2019s founder and CEO, remarking that we were incredibly lucky to be in this industry. I understood exactly what he meant.<\/p>\n\n\n\n

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Brown Advisory Annual Strategy Offsite – September 2027<\/figcaption><\/figure>\n\n\n\n

At its best, private wealth management is one of the most meaningful professions in finance. Advisors help families steward wealth across generations. They guide business owners through liquidity events, structure complex estates, coordinate tax and philanthropic strategies, prepare the next generation, and provide perspective when markets become emotional. Their work is rarely confined to investments alone. More often, it centers on helping families make thoughtful decisions about increasingly complex financial lives.<\/p>\n\n\n\n

Over the years, I have had the opportunity to interact with many wealth management firms, and I have met advisors whom I believe deserve every client they can get. The care with which they advocate for their clients is impossible to miss. They are thoughtful, intellectually honest, and relentless in acting on behalf of the families they serve. If I were asked to recommend them, I gladly would.<\/p>\n\n\n\n

Mike\u2019s observation reflected something else as well. Wealth management is also an extraordinary business.<\/p>\n\n\n\n

Few industries combine recurring revenue, durable client relationships, and long-term asset growth in quite the same way. Advisory fees are typically deducted automatically from client accounts each quarter. Relationships often span decades, and over long periods the asset base generally grows. Clients rarely pay an invoice or make a conscious purchasing decision to continue the relationship. The relationship simply continues.<\/p>\n\n\n\n

The economics show up in the margins and in the prices investors are willing to pay. In 2024, the typical advisory firm achieved an operating profit margin of nearly 40 percent, even as organic growth net of market performance remained modest. In 2025, RIA valuations reached record levels, with median firms trading at more than 11 times EBITDA – a multiple associated to enterprise firms in the industry about a decade ago. These figures reflect a business model with recurring fees, “loyal” clients, and significant operating leverage.<\/p>\n\n\n\n

That is a remarkable feature of the business, and one worth reflecting on. Unlike wealth management, in other industries companies must repeatedly persuade customers that they are worth paying.<\/p>\n\n\n\n

The numbers make the attraction obvious. According to Cerulli Associates, independent RIAs grew assets under management at a 10.9% annualized rate from 2014 to 2024, while hybrid RIAs grew at 12.2%. Together, those channels increased their share of total industry assets from 21% in 2014 to 27% in 2024. And due to incentives for advisors, there is no sign of this trend slowing down. Echelon reported that the first quarter of 2026 set a new quarterly record for wealth management M&A activity, with 142 transactions announced and $1.67 trillion of assets changing hands.<\/p>\n\n\n\n

At an event in Boston earlier this year, I met Mike Rose, a Director in Cerulli\u2019s Wealth Management practice. He shared a statistic that has stayed with me: firms managing more than $5 billion represent roughly 2 percent of RIAs yet they oversee more than half of all RIA assets. Cerulli also found that those firms controlled about 34 percent of RIA assets in 2018. And by the end of 2024, that figure had risen to more than half.<\/p>\n\n\n\n

The independent advisory movement began as an alternative to large financial institutions. Now many of those firms are becoming large financial institutions themselves!<\/p>\n\n\n\n

There are benefits to scale. I saw that during my time at Brown Advisory and Cresset. A family dealing with a business sale, complex trusts, private investments, philanthropy, liquidity needs, and next-generation education is not merely looking for a portfolio. It is looking for judgment across decisions that affect one another. The more complex the family, the more valuable it becomes to have the relevant expertise connected rather than scattered.<\/p>\n\n\n\n

The general contractor analogy is useful here. No one hires a general contractor because they expect that person to perform every trade personally. The value comes from understanding the project as a whole, sequencing the work, bringing the right people together, maintaining quality, and remaining accountable for the finished result.<\/p>\n\n\n\n

But private wealth management is not construction. A home is a project with a beginning and an end while a family\u2019s financial life is ongoing. A trust decision can affect investment policy or a liquidity event can affect tax planning, estate strategy, philanthropy, and family governance at the same time. The work does not arrive in neat categories and one decision often changes the shape of another.<\/p>\n\n\n\n

That is where integrated expertise under one roof can be so valuable. The advantage is not simply convenience but rather a shared context. It is the benefit of having people around the same table who understand the same family, the same priorities, and the same tradeoffs. Advice becomes better when the people giving it are not entering the conversation cold, or being pulled in only after a decision has already started to have its effects.<\/p>\n\n\n\n

Outside specialists will always have a role though. Most firm cannot do everything , and some questions require expertise beyond the walls of any single organization – for example, an attorney in certain market with narrow experience on business matter. But there is a difference between calling on outside expertise and asking the client to manage a loose network of referrals. The best advisory relationships feel more coherent than that. Someone understands the whole picture. Someone is responsible for how the pieces fit together.<\/p>\n\n\n\n

Investment management itself has become steadily less differentiated. Broad market exposure can now be obtained for only a few basis points. Trading costs have largely disappeared even for retail investors. Information that was once available only to institutions is now widely accessible. But even though constructing and maintaining a diversified portfolio has become easier, helping families make sound financial decisions has not.<\/p>\n\n\n\n

The burden should not fall entirely on the client to piece this together. A good advisory firm should make the economics of the relationship plainly visible – almost like an annual client statement. The client should be able to see what was paid in dollars and what work was done for them. Not every client will study it closely and many will simply trust the relationship. But the standard should exist anyway, because transparency should be part of the discipline of doing the work well.<\/p>\n\n\n\n

Looking back, one of the things I appreciated most about my time at Brown Advisory was that the strongest client relationships were never built on investments alone. Brown strived to deliver on “first-class performance” but equally important was integrated “thoughtful advice” and “client-first” service.<\/p>\n\n\n\n

As portfolios become easier to build, firms become larger, and access to products easier – I believe the harder work will be integrating advice around a family\u2019s full financial life. The firms that stand apart will be those that make expertise feel connected rather than fragmented, keep accountability clear, and help families understand not only what they are paying, but the value being created in return.<\/p>\n\n\n\n

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While I was at Brown Advisory, I remember Mike Hankin, the firm\u2019s founder and CEO, remarking that we were incredibly lucky to be in this industry. I understood exactly what he meant. At its best, private wealth management is one of the most meaningful professions in finance. Advisors help families steward wealth across generations. They […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-54","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/persistenthedge.com\/index.php?rest_route=\/wp\/v2\/posts\/54","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/persistenthedge.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/persistenthedge.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/persistenthedge.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/persistenthedge.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=54"}],"version-history":[{"count":12,"href":"https:\/\/persistenthedge.com\/index.php?rest_route=\/wp\/v2\/posts\/54\/revisions"}],"predecessor-version":[{"id":130,"href":"https:\/\/persistenthedge.com\/index.php?rest_route=\/wp\/v2\/posts\/54\/revisions\/130"}],"wp:attachment":[{"href":"https:\/\/persistenthedge.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=54"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/persistenthedge.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=54"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/persistenthedge.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=54"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}