Your RIA has reached $100 million in assets under management.
Congratulations. That is a meaningful milestone.
But it also raises an important question:
Does reaching $100 million in AUM mean you need to build an in-house investment team?
Not necessarily.
We’re about to talk about it all.
But first, welcome to the Fortis Portfolio blog. We provide institutional-grade investment research and portfolio strategies to RIA firms. And the best part about it is that we don’t make your clients feel like they are part of a machine.
And now, onto the main feature!
For many growing RIAs, the instinct is to assume that the next stage of growth requires hiring portfolio managers, investment analysts, research staff, and additional technology.
But there is another option: outsourcing investment management while keeping the client relationship, financial planning, and investment philosophy inside your firm.
The question is not whether your firm can build an investment team.
It is whether building one is the best use of your firm's time, capital, and talent.
What does an RIA with $100 million in AUM actually need?
At $100 million in AUM, your firm may have enough scale to justify more sophisticated investment capabilities.
That does not automatically mean you need more employees.
An investment operation can involve much more than selecting securities.
It can include:
- Investment research
- Portfolio construction
- Asset allocation
- Manager research
- Security selection
- Buy and sell decisions
- Portfolio monitoring
- Risk analysis
- Rebalancing
- Investment committee meetings
- Investment documentation
- Client communications
- Market commentary
- Performance analysis
- Ongoing model maintenance
The more successful an RIA becomes, the more investment management can begin consuming management attention.
And that creates an opportunity-cost question.
What could the firm's advisors and partners be doing instead?
- They could be spending more time with clients.
- They could be improving financial planning.
- They could be developing retirement-income strategies.
- They could be working on tax planning.
- They could be building relationships with centers of influence.
- They could be recruiting.
- They could be developing the next generation of the firm.
Those activities can be difficult to outsource.
Investment research is different.
The real question isn't "Can we manage the money?"
You probably can.
The better question is:
"Is managing the money internally the best way for us to serve our clients and grow the firm?"
There is an important distinction.
An RIA can maintain control over its investment philosophy without having every piece of investment management performed by employees.
Outsourcing investment management does not necessarily mean giving up your identity as an advisor.
It can mean separating two functions:
You manage the client relationship.
Your investment partner manages the investment operation.
That distinction can be particularly valuable for firms that want to be known primarily for financial planning and advice.
Building an investment team is expensive — even before salaries
The obvious cost of an internal investment team is compensation.
But compensation is only part of the equation.
There is also recruiting, benefits, technology, research systems, data, compliance oversight, professional development, management time, and the infrastructure necessary to support the investment process.
And then there is the cost of management attention.
Hiring a portfolio manager doesn't eliminate your responsibility to oversee the portfolio manager.
Hiring an analyst doesn't eliminate the need to determine whether the analyst's research is actually improving the investment process.
Building an investment team creates an organization that must itself be managed.
For some RIAs, that makes perfect sense.
For others, it creates an expensive layer of complexity.
$100 million in AUM does not automatically create economies of scale internally
This is one of the counterintuitive parts of the decision.
An RIA may have $100 million, $250 million, or even more in AUM and still find that maintaining an internal investment operation is difficult to justify economically.
Why?
Because an internal team has relatively fixed costs.
You may need the people and infrastructure whether markets are calm or volatile, whether you are managing $100 million or $150 million, and whether you are growing quickly or slowly.
An outsourced investment partner can potentially spread research, technology, analytics, and investment resources across multiple firms.
That can allow a smaller RIA to access capabilities that would be difficult or expensive to recreate internally.
The question becomes:
Do you want to own the investment infrastructure, or do you want access to it?
Those are very different business models.
Outsourcing does not have to mean using a black box
This is where transparency matters.
An RIA should not outsource its investment process simply because it wants to make the investment department disappear.
The advisor still needs to understand what is happening in client portfolios.
That means the investment process should be explainable.
- Why is a particular allocation being used?
- Why did the portfolio change?
- What risks are being managed?
- What would cause the strategy to change?
- How does the portfolio fit the client's objectives?
If your investment partner cannot explain those things in language you can comfortably communicate to your clients, outsourcing may simply replace one problem with another.
The goal should be institutional-quality investment research without institutional-style complexity in the client conversation.
Your clients may not care how many investment analysts you employ
Think about the client experience.
A client generally does not hire an RIA because the firm has three portfolio managers instead of one.
They hire the firm because they want help making important financial decisions.
They want to know whether they can retire.
They want to know how much they can spend.
They want to understand their taxes.
They want help with estate planning.
They want someone who understands their family, their business, and their goals.
Investment management is important.
But it is part of the overall relationship.
If building an internal investment team means advisors spend less time doing the things clients actually value, the firm should at least question whether that is the right direction.
What should a $100 million RIA keep in-house?
Outsourcing investment management does not mean outsourcing everything.
In fact, some functions may be particularly important to keep close to the client.
Your firm should retain ownership of:
Your client relationships.
You know your clients. You understand their circumstances, concerns, and priorities.
Your financial planning process.
Investment decisions should exist within the context of a client's broader financial life.
Your investment philosophy.
Your firm should be able to articulate what it believes about risk, diversification, markets, and portfolio construction.
Your communication with clients.
Clients should hear from their advisor—not be forced to navigate a complicated investment-management organization.
Your ultimate oversight.
Outsourcing a function does not mean outsourcing responsibility for understanding how that function is being performed.
When does an internal investment team make sense?
There are certainly RIAs for whom an internal investment team is the right answer.
If investment management is a central differentiator of your firm, internal capabilities may be strategically important.
If you have a genuinely differentiated investment philosophy, specialized strategies, or a client base requiring capabilities that are difficult to source externally, building internal expertise may make sense.
But that should be a business decision—not an automatic consequence of reaching $100 million in AUM.
The milestone itself does not tell you what your organizational structure should look like.
A better question for growing RIAs
Instead of asking:
"Are we big enough to have our own investment team?"
Ask:
"What should our people be spending their time doing?"
That question changes the conversation.
If your advisors are spending their days researching securities, maintaining models, analyzing markets, and managing portfolios, are they spending enough time with clients?
If your firm's competitive advantage is financial planning and personal advice, are you allocating your resources toward that advantage?
And if investment management can be performed by an experienced external partner with institutional-grade research, quantitative analytics, ongoing portfolio guidance, and clear client communication, does owning the entire investment operation still make sense?
There is no universal answer.
But $100 million in AUM is not a magic number that requires an RIA to build an internal investment department.
For some firms, the next stage of growth means hiring more investment professionals.
For others, it means doing the opposite: keeping the investment operation lean while giving advisors more time to do what they do best.
The objective is not to build the biggest investment department.
It is to build the most effective RIA.
And sometimes, the smartest investment decision an RIA can make is deciding what it does not need to build itself.
Are you ready to hire an OCIO?
If investment responsibilities are beginning to compete with client service, business development, or long-term growth initiatives, it may be time to evaluate whether an OCIO partnership can help your firm scale more efficiently while continuing to deliver a high-quality investment experience.
Source: ChatGPT