By most measures, the RIA industry is thriving. Assets under management hit record highs in 2024. Median firm revenue grew 18% year-over-year. Client retention held steady at 97%. The independent model continues to attract advisors and investors alike. These are metrics many other industries can only dream of.
And yet, something doesn’t add up.
For many firm owners, particularly those running practices under $1 billion in AUM, profitability is quietly slipping. Not crashing. Not crisis-level. Just enough to create a persistent, nagging sense that the business is working harder for less.
They’re right. According to Fidelity’s benchmarking data, advisory expenses reached 82% of revenue in 2023, leaving smaller RIAs with an operating margin of just 18%, a historic low. Meanwhile, larger firms and top performers continue to report margins of 27 to 30%. The gap is widening, and it’s not because smaller firms are doing something wrong. It’s because the cost of running a modern wealth management practice is rising faster than most owners realize, and faster than their revenue can support.
The question isn’t whether your firm is profitable. It’s whether you can see exactly where the margin is going, and whether you have a plan to protect it.
Where the Margin Is Actually Going
For many wealth management firms, the margin story often traces back to four compounding forces. What makes them tricky is that each one, on its own, looks like a reasonable business decision. It’s only when you see them stacking up on the same P&L that the damage becomes clear.
1. You’re delivering more, for the same fee.
This is the most pervasive margin killer in the industry right now. Over the past several years, RIAs have significantly expanded their service offerings: comprehensive financial planning, tax strategy, estate planning, insurance reviews, even bill pay. All bundled into the same AUM-based fee. It’s been a smart defensive move. Clients are asking “What am I getting for the fee I pay you?” and firms that answer with a robust suite of services retain clients and defend their fee rates.
But there’s a catch. Those additional services require additional people: CFPs, CPAs, licensed insurance agents, paraplanners. And those professionals don’t come cheap. As Lisa Salvi, Schwab’s VP of Advisor Services, put it in the context of the 2025 benchmarking study: when you keep adding services and strategies without adjusting pricing, it manifests directly in margin compression. You’re adding more for the same fee, and that’s a real challenge when you want to deliver gold-standard service. Moreover, the actual impact may be hidden by many years of strong market performance.
Fee compression hasn’t played out the way many predicted. But margin compression has. Quietly and persistently.
2. Talent costs are rising faster than revenue.
In Schwab’s 2025 RIA Benchmarking Study, 78% of firms reported actively hiring in 2024, and recruiting staff ranked as the second-highest strategic priority across all firm sizes. Part of this is growth-driven. But it is also defensive: approximately 37% of RIA advisors will retire in the next decade. Firms are backfilling and expanding at the same time, and neither is optional.
Compensation pressure compounds the problem. Experienced advisors, planners, and operations talent command premium pay, and firms are layering on retention tools (profit-sharing, enhanced benefits, career pathing) that further increase total cost per employee. But when headcount grows faster than the client base can support, what you actually have is underutilized capacity disguised as investment in growth. And very few firms are doing the math to tell the difference.
3. Technology spending is compounding without clear ROI.
This one is harder to see because nobody wants to be the firm that underinvests in tech. Industry benchmarking shows technology spending averages 3 to 4% of revenue for RIA firms, and that number keeps climbing: CRM platforms, financial planning software, portfolio management systems, cybersecurity, compliance tech, and now AI tools. Each addition makes sense in isolation. In aggregate, the technology stack becomes a significant fixed cost that compounds year over year.
Here’s the part that concerns me most for smaller firms. Some smaller firms are spending on technology without extracting the efficiency gains that justify the cost. Larger firms spread these investments across a broader revenue base, while smaller firms absorb the full hit to margins. Same software bill, very different economics.
4. Advisor capacity is misaligned with the client base.
Firms are serving more clients, but AUM per client is falling for a growing number of RIAs. Revenue per advisor, a metric many owners track casually but don’t manage strategically, can mask significant underutilization. For example, an advisor generating $500,000 in revenue might look productive on the surface. But when you layer in fully loaded compensation, allocated overhead, and the technology infrastructure required to support their book, the picture can change dramatically.
Many firms don’t have the financial insight to perform this analysis at the advisor level. They know their top-line numbers. They know their total compensation expense. The connection between individual advisor economics and firm profitability? That remains opaque for many.
The Underlying Problem
So why do these margin leaks persist? In my view, the core issue is straightforward: most RIA owners don’t have anyone translating their financials into forward-looking decisions.
They get two types of financial information: 1) what their custodian reports (AUM, revenue, client count) and 2) what their CPA reports (tax-oriented financials, often 60 to 90 days after the fact). The data exists. What’s missing is someone who can dissect it, stress-test it against different scenarios, and connect it to the strategic questions that actually drive the business: whether the next hire will be accretive, whether a service line is worth keeping, whether an acquisition makes financial sense, or which client segments are worth the resources they consume.
That’s not a reporting gap. It’s a financial leadership gap.
What This Costs You
The math here is unforgiving. A firm running $10 million in revenue at a 27% operating margin retains $2.7 million. That same firm at 18% retains $1.8 million. That’s $900,000 a year in lost profitability, not from doing anything wrong, but from not having the financial visibility to make sharper decisions about hiring, services, capacity, and growth.
And the gap compounds. The firm with stronger margins has more capital to invest in talent, technology, and acquisitions. The firm with weaker margins works harder to stay in place. Over five or ten years, that difference reshapes the trajectory of the business.
If this resonated, let’s talk.
I work with wealth management firm owners as a fractional CFO, providing embedded financial leadership on a part-time basis. The problems described above are exactly what I help firms diagnose and fix: margin visibility, forecasting, advisor-level economics, guidance on M&A, and the financial insight that connects daily decisions to long-term profitability. If you’re growing but the margins aren’t following, I’d welcome the chance to compare notes.
