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Financial industry news and events for RIAs.

6 min read

Data Could be the Key for RIAs Navigating a Down Market

Jul 28, 2022 8:23:24 AM

How advisors can mitigate risk and strengthen client relationships throughout periods of volatility.

Financial advisors are potentially staring down the barrel of a recession – the markets are volatile, and the historical indicators point to a possible bear market. According to the team at Goldman Sachs, there is a 30% chance of a recession occurring over the next year, up from 15% in their last projection from earlier this year. Similarly, Bank of America predicts a 40% chance of a recession in 20231.

What steps can registered investment advisors take to prepare for a potential bear market? How can advisors work to maintain stability for their clients and their businesses through a period of volatility, especially when we don’t know how long that volatility will last?

The average bear market lasts around 388 days; however, the length of these periods can vary widely. The 2020 bear market was the shortest in history, lasting only 33 days. The longest bear market was in the early 2000s, which took 929 days to reach its lowest point.2 While there is no one way for a bear market to unfold, the keys to navigating these periods of volatility could be hiding in RIA custodian data.

Data can not only help advisors navigate a tricky market, but it can also influence the direction of their businesses and how they build and maintain relationships with clients. While data has long been used by the biggest firms in the wealth management industry, there are major opportunities for independent advisors to adopt data analysis for their firms as well.


Managing Risk in Client Portfolios

One way that advisors can put data to work is in evaluating the health of the RIA’s portfolio management. Specifically, diving into concentration risk within portfolios. Analyzing RIA custodian trading data can help advisors to identify potential weak spots in their portfolio management that could spell trouble for clients during a market event.

As an example, consider an advisor that leverages several investment strategies for their clients, with each strategy containing multiple sleeves. These sleeves may be built over a few years and could potentially span different money managers and RIA staff.

What can happen over time is an advisor or investment manager may incorporate a particular holding as a significant portion of those individual sleeves and strategies. Having the same holding across these sleeves and strategies can create issues when looking to hedge risk. While advisors may be able to easily look at these positions at a household, client, or account level, they may not have a way to look at the holistic trading data for all clients across their firm.

Without this data in a clearly organized dashboard, this over-concentration in a specific holding could be overlooked. Having this concentration risk can put client accounts, and subsequently client relationships, in jeopardy. Not only can these over-concentrations impact individual accounts in a down market, they can potentially impact entire households and perhaps an advisor’s full book of business.

By accessing and analyzing this RIA trading data, advisors may be able to identify these potential issues before they come to fruition, and before they harm client portfolios.

Using Data to Segment and Reassess Client Relationships

Most advisors may segment their clients by points like account size, client age or length of relationship. This is information that is readily available in most CRM systems and offers an easy view into what the advisor may consider to be their highest value relationships.

What RIA custodian data may show is that the advisor’s largest accounts may not in fact be their most profitable relationships. In fact, some of these larger clients may be putting a strain on the advisor’s business.

With comprehensive firm data, RIAs can more accurately evaluate the profitability of client relationships. RIAs should consider evaluating points like:

  • Technology Spend – the vendors required to support each client account
  • Time Investment – how much time each team member spends serving a particular client
  • Account Growth – client account growth over time, as well as projected growth potential over the course of the relationship

These data points can help paint a more complete picture of the profitability of client accounts, and can help inform the direction of an RIA’s business.

Identifying Profitability of Clients and Prospects

Every RIA wants to win the big clients – investors with sizeable accounts that could benefit from a high-touch advisor. However, the biggest accounts aren’t always the most profitable. To understand how profitable a client relationship is for an RIA, the advisor needs to dive into the three points covered in the last section: technology spend, time investment, and account growth.

Take as an example a large client that is nearing retirement, with income expected to drop in the coming years. To serve this client, the RIA may need to leverage a range of third-party technologies not needed for other accounts, adding extra costs to the firm’s technology budget. Perhaps the client also requires a substantial time investment to conduct financial planning, or maybe they call in for an account update on a weekly basis. Even with a higher asset level, this client may not be as profitable as a smaller client with less complexities.

A recession could be the right time for RIAs to take a step back to evaluate client profitability and reassess the types of clients the advisor would like to add to their roster. While it’s always exciting to add large clients, perhaps the team has more bandwidth to take on smaller, higher potential accounts.

Consider HENRYs (High Earners, Not Rich Yet) for example – individuals with a relatively simple financial situation today that could blossom into larger accounts down the line. Establishing strong relationships with these clients early on can set up long-term engagements spanning decades.

In a down market, understanding which clients are the most and least profitable can become increasingly important. Some of those larger clients that may not be as profitable could also be the first clients to pick up the phone when the market dips.

Staying in front of clients during periods of volatility can be critical for advisors. However, if the bulk of an advisor’s time and energy is focused on quelling the fears of a few low-profit client relationships, that could lead to issues across the RIA’s entire book of business. This added time investment during a down market can also further reduce the profitability of those client relationships.

Harnessing this data can help advisors to design pricing models to make every relationship work, scaling pricing structures to account for clients’ different needs and levels of time investment.

How can RIAs evaluate what data they can access?

As advisors get prepped for a potential recession, it’s important that they take the time to determine what data they can access. Not all RIA custodial service providers approach data the same way.

Some providers limit data access. They may limit based on timing (only offering data at certain times), types of data (only making some data points accessible or only offering raw unstructured data that may be difficult to review and sort), or by intention (if a RIA is considering leaving the provider, that custodian may limit data access). These limitations can significantly reduce the ways advisors can leverage data for their practices in a down market.

Other providers, like TradePMR, look to offer structured, usable data to RIAs. This is data that advisors can more easily analyze and leverage for their practices.

TradePMR believes RIA firm data is just that – the RIA’s data. Download TradePMR’s data white paper to learn more about how advisors can leverage data for their businesses, and how TradePMR approaches data access for RIAs.



1 What is a recession, and when is the next one going to begin?, Isabella Simonetti and Niraj Chokshi, The New York Times, June 24th, 2022.

2 How Long Will This Bear Market Last? Here's What History Shows, Catherine Brock, The Motley Fool, June 22nd, 2022.

Written by TradePMR