On June 18, the Managing Partner at Gorman Jones, a boutique investment bank for RIAs, wrote an article for WealthManagement.com. While it almost certainly was written with good intentions, Invisionary Financial thought it was very important to offer a rebuttal to several of the points made in the article to offer you a different perspective.
“If you are sub-scale, you are falling behind … That’s not to say that smaller independent firms cannot still succeed, but their path will certainly narrow due to the cost of investment required to successfully implement these [AI] tools.”
Yes, most consulting firms do charge a small fortune for their services. However, Invisionary Financial calls this the “Expensive Transformation Fallacy” for a reason. When you hire most consulting firms, their fee is loaded with many non-value-add items. It includes the partner's salary who only periodically checks in on the project. It includes the price of consultants who are learning-on-the-job. It includes the consulting firm's nice office that comes with perks like free lunches and fancy team dinners. And it even includes other random things like sponsoring golf events and buying luxury boxes to sporting events for “entertainment purposes.” Yes, when you include all those expenses, hiring a consulting firm for your AI transformation can be quite expensive. But what happens when you strip all that out? What happens when you only pay for the value provided to you? As Warren Buffett said, “Price is what you pay. Value is what you get.”
“If building out a broader service suite is what it takes to remain competitive, can you realistically get there on your own, or does joining a firm that’s already there make more sense?”
In the Industrial Age, the name of the game was mass production. Big firms. Cookie cutter tools. Standardized outputs. In the Information Age, the name of the game is going to be personalization. Niche firms. Nimble tools. Nuanced outputs. More importantly, it doesn't take a massive transformation to get there. In fact, a study by BCG found that 70% of large-scale transformations fail. The most impactful projects are often narrowly defined and focused on high-leverage actions, or the small actions that deliver disproportionately large results. These small projects create early wins and early wins spark a virtuous cycle which ultimately can culminate into that "broad service suite" described.
“Partnering with an investment banking firm that specializes in wealth management can help start the conversation about your firm’s valuation and provide a benchmark analysis to understand where you stand in the market.”
There are indeed times when it makes sense to sell your RIA to private equity or a larger firm. However, it is incorrect to suggest that it is the only path, or even the primary path, forward for a small RIA in the AI era. Small businesses are actually in the enviable position of being small while big businesses are trying to become smaller and more nimble. Even more so, AI has the potential to be the great equalizer that finally levels the playing field. Can't afford a social media manager? AI can create images and captions that mimic the style of your best-performing posts. Can't afford a coder? AI can build professional-looking websites and complex Python scripts in mere hours through simple vibe coding. Can't afford an Analyst? AI can do the copy-pasting of numbers, creation of slides, and basic research to expedite tedious tasks. Should a small RIA view AI as a replacement for human workers? Definitely not. However, AI is increasingly capable of handling real-world work as demonstrated through benchmarks like GDPval-AA and provides an opportunity for small RIAs to punch above their weight class.
Once again, Gorman Jones almost certainly comes from a good place with their perspective. They are a small business too and undoubtedly want to help small RIAs. However, it is important to dispel the myth that there is only one path forward for small RIAs in the AI era. Small RIAs not only can succeed but may actually be best positioned to succeed. If anyone tries to tell you otherwise, know that there is someone in your corner ready to help fight back.