I’m telling secrets today. Strap in.

USA Today published its list of the Best Financial Advisory Firms in America this week. My firm, Ritholtz Wealth Management, was ranked number eight overall and number two in the state of New York.

This isn’t one of those lists where you can pay to be on it or nominate yourself or be friendly with the editor. It’s not a list of people who go to a lot of conferences or feign influence on LinkedIn. The criteria for inclusion on the USA Today list (link here or read below) are laid out for all to see. These are the firms that are blowing up right now, quantitatively, and enjoy positive feedback, qualitatively.

I know a lot of the other shops on the list and they are legit players in our industry. I feel good about being counted among them.

The methodology first, then the lesson…

Top ten firms in America, according to the piece:

Now about that number 8 of 500…

No.

We are one of one.

Degree of Difficulty

There’s no one on this list (or anywhere in the industry) doing things how we’re doing them. There’s a degree of difficulty involved in The Ritholtz Way that I want to explain here so that the honor my people have achieved is fully appreciated. And, most importantly, there’s a reason for the degree of difficulty we have placed on our own shoulders that is both client-centric and culture-oriented. If you are building a company of your own or working hard for one that you believe in, no matter what you do for a living, I think what I am about to lay out will be highly instructive.

The first thing you have to understand is that many of the larger firms on this have grown primarily through a combination of two strategies that we have no interest in.

The first of these strategies is mergers & acquisitions. A lot has been written about the M&A happening in the advisory business which is primarily driven by the fact that founders are approaching retirement age and private equity firms have been writing gigantic checks. Roll-ups are uninteresting to me (my multiple is 5x and yours is 3x so I buy you and - voila! - alchemy! Instant profit on paper!) but I understand why they’re so popular - you should hear how much the accountants, lawyers and consultants love them! Suffice it to say, we have not acquired any RIAs, mostly because we don’t think most of them have true enterprise value and we’re probably already talking to their clients anyway.

Generally, in most industries, when you’re growing 20 or 30 percent organically, you’re only doing acquisitions that have strategic value (new line of business, eliminating capacity, acquiring scale) or where the target company is doing something highly unique that could benefit your entire organization. You would not buy smaller competitors who are doing the same thing you’re already doing but not as well. Unless you needed to buy them to show your private equity backers growth on their invested capital. In that case, you’ll be glad to pay up for deals, be less selective and generally just get them off your back so you don’t have to hear it anymore.

Let’s put a pin in that topic for another day…

The second most popular growth strategy is worth discussing because no one else seems to want to: Referral networks. Joining a referral network means you are essentially renting clients from the large brokerage custodians like Charles Schwab, Fidelity and TD Ameritrade. It’s been the lifeblood of our industry since before I got my Series 65. It’s not a secret, but it’s definitely not the first thing most RIA founders want to talk about. They’d prefer that you not focus too much about how their clients found them. They definitely don’t want to be seen as having paid someone else for their growth.

Referral Networks

There’s nothing untoward about referral networks.

The way this works is a retail customer of TD Ameritrade (for example) wanders into the branch asking financial advice or investing questions that the corporate associate manning the desk can’t or isn’t empowered to answer. That branch associate will walk the customer over to another financial advisor who is sitting at a desk across the room. This other financial advisor is the representative of an independent RIA that has a fee-sharing relationship with TD. An introduction is made, sometimes to multiple independent advisors at once.

The customer gets the opportunity to talk to someone in a more in-depth way about their retirement plans and portfolio. The associate will sometimes be compensated for making the introduction. The RIA rep will pitch his or her firm’s portfolio and planning services to the TD customer. In many cases, that TD customer will then become a client of the RIA after signing a Limited Power of Attorney (LPOA) appointing them as advisor to the brokerage account(s) that is already sitting at TD. This account then moves over from the retail side of the brokerage to the “institutional” side and the RIA becomes the “advisor of record” on the account. The ongoing asset management fees are split between TD and the RIA that the customer selected.

What I’ve just described is perfectly above board and is obviously popular with the end-clients who might otherwise have a difficult time finding an independent advisor of their own. If it were unpopular, the large brokerages would have discontinued it a long time ago. Some of the largest, most successful RIAs in the country have been built on the referral networks of Schwab, Fidelity and TD Ameritrade over the last twenty years.

For the most part, this business model has been mutually beneficial to all parties - the broker, the RIA and the investor. It helps the brokerage customers get a higher level of planning and service than they could otherwise get and it helps the advisory firms who are institutional custody clients get larger and expand.

I shouldn’t just say it “helps” these RIAs - in many cases it is the only route to growth these firms have ever had and will ever have. Outside of referrals, many RIAs would have a great deal of difficulty growing. Everybody knows this, but nobody wants to be the one to say it out loud. But you know me, I can’t help myself.

Welcome to the Jungle

In recent years, larger RIAs and platforms of RIAs have been getting aggressive about grabbing these branch referral opportunities for their advisors. Elbows have gotten sharper. Referral network fees have increased. The flow of potential clients has slowed. If these programs were to be cut off tomorrow, I would guess a large portion of the firms in our industry would see their growth go into reverse and their expansion plans become unviable. There is some anxiety beneath the surface as large firms begin acting like large firms do in every industry, throwing their weight around and squeezing their less powerful competitors to the sidelines. If you’re a brokerage custodian, whose bread are you going to butter - the $50 million AUM client or the $50 billion one who is paying you a lot more? Law of the jungle.

In addition to competition among advisors for referrals, Schwab and Fidelity, the last remaining large custodians, are already openly competing with their own independent RIA customers to give advice to retail investors. It’s not a huge imaginative leap to picture them saying no mas on the referral program, preferring instead to advise their own customers in-house at a potentially better margin.

If your business is fully dependent on another, larger business, you are a vassal state in a feudal relationship. I’m glad this relationship has gone well for you so far. I wouldn’t count on it continuing in perpetuity. Many firms have built themselves this way for so long they never bothered to invest in a more homegrown approach. Now they might be trapped. This explains some of the merger mania but not everyone wants to sell.

So what is the solution to this conundrum?

Organic growth.

Organic Growth

In my opinion, the very best RIAs have figured out how to do this, even if they also participate in the referral programs at the large brokers. If you’re a small to midsize RIA, the ability to generate your own inbound clients is not going to be a nice-to-have in the second half of this decade. It’s going to be the difference between survival or selling out. They say that if you’re not growing you’re dying, metaphorically. Your eldest clients, unfortunately, are dying literally. Their children are not staying because you’re not cool. Therefore, organic growth is going to be essential should the referral networks slow their largesse to a trickle (and they will).

Many firms will not figure out an organic growth strategy because it’s difficult.

In my experience, I have found that difficult things are worth doing. Even if you’re not seeing the immediate benefit from them.

My staff has grown our firm from a starting point of $60 million to over $4 billion in its first ten years. If you were to look for other $4 billion firms around the country, you would find some. At a glance, we might look similarly positioned. That glance would be misleading because not a single one of our clients came to us through the brokerage referral programs I’ve described above. We’ve never even considered it. The organic growth engine we’ve built via content, commentary and the building of trust (our intellectual property) is wholly unique within the industry. So unique, in fact, that I can’t even think of a single RIA who looks or operates like us at all. The degree of difficulty in how we got here is going to be how we pull away from the pack as the game changes. Self-reliant, organically growing firms are going to win in a world of diminishing returns from referral networks and acquisitions. We have a ten year head start as competitors begin to pivot. Only now are people starting to recognize our IP and audience development for what it represents.

It represents the future. Not all $4 billion firms are the same.

When our financial advisors - who mostly discovered the firm because they agreed with our message and wanted to represent it - are introduced to our fans who would like to learn more, there’s an instant bond. It was formed before they even met, because they’re both here for the same reason. They’re both philosophically aligned from the outset. It’s magic. We’re getting into the planning process faster than would happen elsewhere because that trust already exists. We’re converting more of these at-bats, more rapidly, as a result.

The Customers’ Yachts

Now you might be asking why does this ability to talk to an audience prior to their becoming clients matter to, well, the clients? You can see why this would be a powerful advantage for an RIA, but what is the advantage for the investor?

I’m glad you asked. If you hadn’t, I probably would have brought it up anyway. It’s an important part of the story. Advisors will be reading this part and nodding their heads because they know it’s true. Investors will be like WTF!?! because they’ve probably never considered it…

So, when you are about to talk to an advisor for the first time, regardless of how well-meaning or dubious that advisor is, there is an angel and a devil sitting on that advisor’s shoulders. The angel is saying “Make the portfolio recommendation that you believe will do the best in the future.” The devil is saying “Give them the portfolio recommendation you know they’ll say yes to, close the deal.”

Depending on how long it has been since the advisor has gotten a legitimate prospect meeting, there is likely to be some level of desperation. This leads to expedience and corner-cutting. So if it’s the end of 2022 and you’re creating a proposed portfolio for a client, and it’s been kind of a new client drought of late, you might be tempted to include a liquid alt that avoided the stock and bond crash of that year. It’ll make the recent backtest look great compared to straight-up Vanguard 60/40 stuff. It’s definitely not going to be the right answer going forward, but it’s likely to push a certain kind of prospective client off the fence and into the Yes yard. “Ooooh, sophistication, where do I sign?”

There are many professional financial advisors who would be offended by the suggestion that one of their colleagues would do something like this to get a prospect to commit. These folks are adorable and should probably get out of the house more. If you think the explosion in advisor interest for liquid alts began at the beginning of 2023 by accident or coincidentally, you have not only rolled into town on the back of a turnip truck, you have also possibly been hit by it. Have your head examined for dents. A portfolio recommendation is a story and that story has to end with “here’s how you would have been better off investing with us over the last few years…”

Don’t act so shocked.

As for the rest of you - especially the advisors who started out in the wirehouse, broker-dealer or insurance channel - you know damn well that this is happening all the time and it always has. Gold rallies big for three years? By year four, there’s a “gold sleeve” in the proposed allocation for prospective clients. Emerging Markets underperforms for ten years? Bang! It’s gone from the pitch deck, as though it never even existed. Nobody is showing a prospect theoretical shit performance. I don’t care how many pages of “past performance” disclaimers they need to add, they will.

If you’re a firm that’s been around for five years or so, you need to show “actual” or at least be able to articulate why changes to allocations have been made. You don’t need a backtest if you have actual numbers, what you need is clean data. And then you need to remind everyone that whatever past performance you’ve produced means nothing for future results. Not only by law must you repeat this incantation, by good conscience as well. Once again, if you have a lot of potential clients to talk to, you’re not selling performance, you’re selling expertise, service and capability. The most delusional of the performance chasers won’t make it to a second meeting, they’ll out themselves early in the process.

If you’re a younger firm, hypothetical is all you have, disclaimer-ed out the ass for compliance purposes. And you’re not going to be backtesting with two-star funds or “lost decade” asset class weightings. You and I both know you’re going to make it look hypothetically amazing, or select managers from the TAMP who already have.

Yes you are. Don’t email me. You know it’s true. No DMs either.

Less desperate advisors who get a lot of at-bats throughout the course of the year are less likely to feel the pressure to close business. Hopefully, they’re at a firm that assures them they should be saying no to the wrong type of client so they can focus on the right ones. An advisor who is confident that there are plenty of opportunities ahead of them to talk to prospective clients doesn’t shoehorn people into whatever recommendation is the easiest thing to sell. They’ll stand by the right portfolio allocation, even if it’s a harder sell, and they’ll accept the fact that not every investor is a great fit or ready to hear the truth.

That truth - that anything you do to reduce volatility in the short-term is likely to reduce your future returns over the long-term - is the main message. We don’t teach people to avoid risk, we teach them which risks to take, how much risk is necessary and then prepare them for the fact that upside comes from enduring potential downside. Seems like such an obvious truth and yet there are grown adults - amateur and professional - who spend their entire lives looking for a way around it. “Why can’t I have the up without the down?” or “Okay, but only invest my money in things that will go higher.” Is there an advisor who is willing to cater to this childishness? Yes there is, and you better pray you don’t ever meet him.

Okay, so that was a digression within a digression. I’m sorry, won’t happen again, but I’ve been waiting to say some of these things for a decade.

The takeaway here is that advisors working within systems where prospective clients are hard to come by might be motivated by that scarcity to say whatever it takes to win the business. Advisors with no shortage of people to talk to do not feel that pressure and can practice their profession at the highest possible standard. If you own a firm and your client-facing advisors are starving, you’re not going to like the churn rate three years from now when those expectations they set lead to investor disappointment.

The Ritholtz Way

Nationwide brand awareness among the investing public is something almost no RIA firm enjoys. It’s a highly-fragmented cottage industry other than the Wall Street wirehouses and perhaps Ken Fisher. There are some RIA brands that resonate in specific towns or regions, but I would struggle to come up with many off the top of my head. The kind of familiarity bred by a decade-plus of talking people through market panics, political crises, crashes, corrections, pandemics and wars is not something you can buy, borrow or steal. You have to earn it. It costs a lot to earn.

Brands don’t come about because you printed up business cards or slapped up a website. A name isn’t a brand. A logo isn’t a brand. A Twitter feed isn’t a brand. A brand is a brand. What does it stand for? How is it different? Why is it meaningful?

In my personal opinion, no other RIA is talking to investors in their twenties as successfully as it talks to investors in their seventies while offering custom-tailored services for both cohorts (and everyone in between). Why not? What’s stopped these firms from doing so?

I told you, it’s f***ing hard. You can’t reach people in their twenties on the radio or in print. More than 45 percent of Gen Z get their news from TikTok. Three out of four Millennials use YouTube and 62 percent use it daily. Want to know what percentage of people aged 18-34 get their news from cable TV? No you don’t.

The investments we’ve made in audio, video, writing, audience development, fanbase cultivation, data analytics, search relevance, content distribution, etc have not been matched by any other advisor I can think of (and I know everyone). Nor would I expect them to be - it was a crazy bet to make when we began to make it, doubling and tripling down on the cost, time, energy and personnel well in advance of any of this looking like a sure thing. While most firms ten years ago were treating content and social media like pet projects or something for the intern to do, we pursued it wholeheartedly, with executives at the top of the firm directly involved in the creative. Again, among our peers this looked kind of insane at the outset. But I’m glad we did it that way.

It’s the Ritholtz Way.

There are several millennial founders I know of who are following in our footsteps, creating amazing libraries of content in a variety of formats from written to audio to video. They’re building a fanbase and developing a brand all their own. I always try to encourage them by complimenting their work and re-sharing it to our audience. My firm’s director of investor education Tadas Viskanta ( of the Abnormal Returns blog) is probably responsible for more inbound clicks to other advisors’ sites than anyone you can think of.

I recently came across a young RIA founder named James Conole, a Certified Financial Planner and YouTube Ninja Warrior who is absolutely crushing it on video. I love to see this and encourage it anywhere I give a talk or a presentation to the industry (maybe we’ll get James out to Future Proof this summer). Go listen to or watch an episode of Kevin Thompson’s 9Innings podcast. He was a good enough outfielder to play for the Yankees, but watching him broadcast about financial planning makes me feel like he was born to do this, not baseball. I’m going to support these two advisor-creators and many others because it’s nice to have a community. And they’re damn good, too.

Somewhere out there, a young advisor is reading this and saying to themselves “One day I’m going to do what those Ritholtz guys did, but I will do it even better.” To which I’d say, Go ahead. I want you to. I’ll probably take you out to lunch or have you on my podcast on your way up the ladder. The same way the people I looked up to encouraged me. You see, this is also a key tenet of The Ritholtz Way. We don’t fight with people we could potentially learn from and we don’t seek to take opportunity away from others. Ask anyone who knows me, I have always operated this way. I learned it from Barry.

Thank You

We couldn’t be where we are without the love, trust, support, patience and belief of our friends, fans, employees, allies and, of course, our clients. There’s no other route to this place we’ve arrived at. It took a cast of thousands to make this possible. We know it and we’re thankful for it all the time.

Thanks to USA Today and Statista for including us among so many great investment advisory firms. I’m not a big list guy but it’s pretty cool to be on this one. We’ll see you all at the beach this September.

That’s it from me, talk soon! - Josh

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