LO Strategy in RIA

I can give some color as I worked at one of these for a few years and interviewed at others before moving to a large boutique long-only.

The Good: Working in research on a LO strategy within an RIA is a great way to get your foot in the door and build out a skillset if you come from a non-traditional background. The hours are cushy and sometimes you can get lucky and find a good mentor within the firm to learn from. Even if you don't find a mentor, this can be a great place to learn if you are very self-motivated. There are few better ways to become a good analyst than just digging into and writing up a ton of stocks over a few years. While headhunters may disagree, I think these are good stepping stones to get into a more traditional LO or long-biased SM seat for someone that didn't take the traditional route through banking, etc.

The Bad: All that being said, the most important difference between a research seat in an RIA and a traditional LO is that in the RIA, the investment team is a cost center for the end product, while in a LO the investment team IS the product. The product for an RIA is the wealth management service and relationship that the advisor offers. This is what the client is paying for. An internal investment strategy, even if it has good performance is just a cherry on top. The advisors hold the relationships which drive AUM, which drives fees so they have all the power. At a LO, the investment team is the product and the clients are (at least theoretically) paying for investment performance, so assuming the firm has decent distribution, performance is the driver of asset levels which drives fees so the investment team has all the power.

The Ugly: Because of the internal power dynamic I just explained, this means that the RIA investment team will never be compensated well relative to a traditional LO, even at similar asset levels. A LO has a specific management fee that the team generally gets a cut of which represents a direct tie to the fund economics. Within an RIA, a theoretical management fee (if there is one) is lumped in with the advisory fee so there isn't really a pot of money specifically earmarked for the investment team. This leads to the investment team fighting for every dollar when it comes to compensation and research resources. When you are a cost center, it is hard to convince the advisors within the firm to give up a cut of their fee stream. Why should they? They could just as easily layer on a fee for a 3rd party mutual fund and keep the entire advisory fee for themselves and the client probably won't know or care.

To put anecdotal numbers on this, I interviewed for a research analyst position at a $10+ billion RIA that had >$2 billion in assets in its internal strategy. There were 4 members of the investment team so the economics should have been good. The offer for an analyst (not associate) seat was $120k base with a $20-50k bonus. For comparison, the offer for the seat I eventually took at a $10+ billion boutique LO was $200k base with a $200k+ bonus. From other positions I have heard of, this spread is not out of the ordinary.

All this is to say that these seats can be great places to start or end your career but I wouldnt plan on getting rich in one. The hours are fantastic and the job security is solid. This comes at the expense of compensation but if you are semi-retired or a brand new analyst just looking to get some actual experience, this may not be as much of an issue. Just don't expect advisors to give up their portion of the economics to fairly compensate the investment team. It won't happen.