What is a $1 Billion Wealth Management Firm?

Can you imagine a wealth management firm reaching $1 billion dollars in revenue or market value? Outside of the largest banks and brokerage firms, it is extremely rare for a financial service provider to scale that far.

Instead, when managers and planners talk about being a billion dollar firm, they are usually referring to assets under management.

Assets under management (AUM) is the most common way to evaluate the size and scale of a wealth management business.

Like all business goals, these numbers are somewhat arbitrary. But, hitting such heights comes with some enormous financial rewards and the capacity to positively impact the lives of thousands of people.

Advisors that accrue $1 billion in assets under management will employ dozens of team members, serve hundreds, or thousands, of clients, and can make a living that allows them to contribute to numerous charitable organizations.

The reason for that is most advisors charge a fee to clients based upon the assets they manage on their behalf.

The general rule-of-thumb is that financial advisors charge 1% AUM fees. However, most investment managers have fee schedules that drop as the total assets grow. For example, a client with $100 million in assets would likely be resistant to paying $1 million per year just to have their fund invested into index funds and ETFs.  

Therefore, with graduated rates and breakpoints, the median advisory fee for high-net-worth clients is actually closer to 0.50% than 1%.

We can assume that a wealth management business with $1 billion in assets under management is doing at least $5 million in annual revenue. 

This can scale beyond just 1% in assets under management if the advisor provides additional services to their clients and charges a retainer.

Some business owners will pay a retainer to an advisor to help with tax and financial planning, despite the majority of their net worth being tied up in an illiquid asset.

A relatively small percentage of wealth management firms accrue $1 billion or more in assets under management. 

Let’s look at what it take to make that happen:

How to Build a $1 Billion AUM Firm

There are a lot of things that go into building a firm with more than one billion dollars worth of assets under management.

For starters, you will need to identify a niche of clientele that you can serve disproportionately well. Late stage wealth management companies will diversify into a wide variety of practices and specialties. But, it is rare for a firm to achieve early success without picking a niche clientele base that they are especially effective at serving.

While this niche can be geographic, it is much more common for it to be based on industry.

Medical doctor compensation structures and loan forgiveness schemes aren’t that different across state lines.

Athletes all face similar cliffs on their earning power that most other professions don’t have to worry about.

Business owners need specific advice around key man insurance, navigating the sale of a business, and what to do with a lump sum.

Retirees have many of the same concerns in Michigan as they do in Vermont.

The advantage of picking a niche extends beyond the service that you provide to clients. There are network effects that grow from building a clientele base in one field, developing a reputation for your niche expertise, and tailoring your marketing to reach a specific audience.

Looking back at the four examples above, it is easy to imagine that each niche wealth advisor would write very different blog posts, create different educational videos, and target very different demographics with their advertising strategies.

And the best part is, this marketing advantage compounds just like the assets that you manage for your clients.

A website dedicated to financial advice for a specific niche audience will be treated favorably by Google’s search algorithms and earn authority when your ideal client is searching for answers online.

A YouTube channel with the same qualities will find itself organically recommended to viewers looking for personalized recommendations.

And if you can build an email list of your ideal potential clients, you can message them directly without an algorithm filtering your message. In fact, that same email list can be used to improve the targeting of your advertising on platforms like Google, Meta, and Linkedin.

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