The Seven Fees Cutting Into Your RIA’s Operating Margin

Executive Summary

The standard advice for a firm that wants to be worth more is to grow the top line. Bring in more households, raise the average account size, add a service the firm down the road doesn’t offer, and the margin is supposed to take care of itself. Overhead gets treated as fixed, a cost of being open that somebody handles once a year when the renewal notices come in. Most owners can’t tell you within twenty thousand dollars what they spend to run the firm, and almost none of them can tell you what a firm their size should be paying.

For a small firm that math has stopped working. Citing Fidelity’s 2024 RIA Benchmarking Study, advisory expenses at smaller RIAs reached 82% of revenue in 2023, which left operating margins at a record low of 18%, while the most profitable firms in the 2025 InvestmentNews Advisor Benchmarking Study held overhead to 25.7% of revenue. The distance between those two numbers isn’t one large mistake. It’s seven or eight recurring bills that each drifted up a little at every renewal and never got a second look. This post walks through the seven fees cutting into your RIA’s operating margin, and what it takes to renegotiate each one.

Neil runs a firm in Fort Worth, a little under two hundred million dollars, around a hundred and ten households, and he’s been at it eleven years with one full-time client service associate. He called because his revenue was up about forty percent over four years and what he paid himself hadn’t moved. He’d more or less decided the answer was to raise his fee, and he wanted a second opinion before he sent the letter to clients.

We asked him to do one thing first. Pull every recurring invoice from the last twelve months into one spreadsheet, sorted biggest to smallest. It took him an afternoon. He found eleven line items he’d forgotten were on autopay, two renewals that had gone up more than twenty percent with no phone call, and a rebalancing tool he’d stopped opening in 2024 that was still billing him every quarter.

None of that is unusual. It’s the normal state of a firm that grew faster than the person keeping its books, and Neil had been keeping his own books the whole time.

What A Small RIA Actually Spends To Keep The Doors Open

Payroll is the big one and every owner knows it. The Schwab RIA Compensation Report puts compensation at 74% of an RIA’s total expenses, and at a firm with up to a hundred million under management the median headcount is three people. So most of what a small firm spends is salaries, and salaries are not a line you renegotiate by calling a vendor. Whether adding one of those people pays for itself is a separate question with its own break-even math.

After payroll, a solo or near-solo firm is carrying a custodial relationship, an investment management arrangement, financial planning software, a CRM, a compliance function, insurance, and office space. That’s seven categories, and every one of them is a place where a small buyer overpays. In our database of Texas registered investment advisers, 1,046 of the 1,405 firms that report headcount run on a single investment adviser representative, and 1,145 of the 1,206 that report assets manage under a hundred million dollars. A firm that size is buying all seven of those things from the same vendors that serve billion-dollar RIAs, and it is not being quoted the same price.

The Investment Adviser Association’s most recent industry snapshot counts 15,870 advisory firms, 93% of them with no more than a hundred employees, and a median firm of eight employees managing $393 million. The industry is mostly small firms. The vendors know that, and the list price is written for a buyer who won’t check it. A Financial Planning Association survey found 93% of advisors describe themselves as growth-motivated while only 12% are satisfied with the growth they’re getting. A good part of that gap is firms adding revenue that never reaches the operating margin, because the cost of running the place rose right alongside it.

Custodian And Platform Fees Are Not As Free As They Look

The custodian doesn’t send most RIAs an invoice, so most RIAs file the relationship under free. It isn’t free. You’re paying in the ticket charges that hit client accounts, in platform and technology fees that land as basis points on certain positions, in the yield the custodian keeps on the cash sweep, and in whatever you conceded to get onto the platform in the first place. How the newer platforms price all of this differently from the incumbents is worth reading before your next review.

The renegotiation lever here is smaller than people think and it’s still real. Ask for the current ticket-charge schedule in writing and compare it to what the platform advertises to firms it’s trying to win. Ask what the cash sweep is paying your clients against what a money market fund on the same platform pays, because the difference is revenue the custodian is keeping instead of your clients. If you already custody in more than one place, you have a live quote to hold up. Custodians rarely cut a headline number, they move the things around the edges, and the things around the edges on a book north of a hundred million dollars add up to a staff salary.

Investment Management Is The Biggest Line Nobody Benchmarks

This is where the dollars are largest and the comparison is hardest, because most owners don’t count their own time as a cost. InvestmentNews, citing a paper on mid-sized firms, put the fully loaded cost of running investment operations in-house at a two hundred and fifty million dollar firm at 25 to 35 basis points a year, which works out to between $625,000 and $875,000 once you count principal time at market rates, research subscriptions, trading platform fees, and compliance oversight. A TAMP at that size runs 10 to 20 basis points, or $250,000 to $500,000.

That is not an argument to outsource. It’s an argument to know the number. A survey of more than 1,350 RIA firms found the average all-in outsourced investment management fee charged to a client was 0.42%, with a median of 0.40%, and that only about 21% of firms outsource portfolio management at all. If you run the money yourself and treat that as free, you’re measuring against zero when the real comparison is forty basis points of your time and your tooling. Sometimes in-house still wins that comparison. You just have to actually run it, and most owners never do because the in-house cost never shows up as a bill.

There’s a middle option most small firms skip past, which is keeping the investment decisions and outsourcing only the trading and rebalancing. That’s a smaller fee than a full TAMP and it takes back the part of the week that eats the most hours for the least judgment.

Your Software Stack Renews Itself Whether You Read It Or Not

Advisory firms spent a record 3.69% of revenue on technology last year, and the average firm’s technology budget came to $120,309. On a firm doing a million and a half in revenue that’s a real number, and almost none of it gets looked at between one renewal and the next.

The core tools are close to universal. In Schwab’s 2024 benchmarking work, 99% of RIAs use a portfolio management system, 97% have a CRM, and 93% run financial planning software. Universal adoption cuts two ways. It gives the vendors pricing power, and it means there’s a direct competitor for every tool you pay for, which is the fact you’re supposed to have in hand at renewal. The longer version of this section is its own post. The short version is that per-seat billing keeps charging for seats after people leave, the free or lower tier of a tool you’ve outgrown in one direction is often still enough in the direction you actually use it, and the integration you switched vendors to get is frequently one you never turned on.

Neil’s forgotten rebalancing tool was $340 a quarter. On its own that’s noise. The point of the list is that he had four of those.

Compliance, Filing, And Insurance Costs Creep At Every Renewal

Registration and filing fees, a compliance consultant on retainer, books-and-records archiving, and errors and omissions coverage. The consultant retainer is the one that drifts, because it renews on its own every year and the scope almost never gets revisited even after you’ve brought pieces of the work back in house or bought a tool that does part of it.

Insureon’s data, reported by SmartAsset, puts the median errors and omissions premium for RIAs and financial planners at $2,610 a year at a million dollars of coverage, against $735 for the average small business, and Insureon’s own figures put the average financial and investment adviser closer to $3,443. That coverage is worth shopping every couple of years. The renewal quote from your current carrier is almost never the market price, and a broker who works with advisory firms will run it against three or four carriers for you at no cost to you.

How To Renegotiate Seven Lines In One Afternoon

The renegotiation is less confrontational than owners expect it to be. You are not threatening anyone. You’re calling a vendor who would rather keep your business at a lower number than lose it at the current one, and most of them have a retention discount they never bring up on their own.

Call before the renewal date, not after it auto-renews, because once it renews you’ve told them price doesn’t matter to you. Get a competitor’s written quote first so the conversation has a real number in it. Ask directly what a firm your size pays, then ask what they can do to match the quote you’re holding. Be willing to actually move one small thing, a single account or a secondary tool, so they know the threat isn’t empty. Vendors can tell the difference between an owner who is annoyed and an owner who has already half moved.

We call the whole thing the Annual Fee Review. Run it once a year, in the same month every year, and it takes less time than a single client review.

1. Pull twelve months of recurring invoices into one list, sorted largest to smallest. Everything that bills on a schedule goes on it, including the custodian costs that never arrive as an invoice.
2. Put a comparable number next to each line. Cost per client, or cost in basis points of assets, or cost per seat. A raw dollar figure tells you nothing until it’s sitting next to something.
3. Start at the top of the list. A ten percent cut on the two biggest lines beats canceling four small subscriptions, and the small subscriptions tempt you first because they’re the easy ones to kill.
4. Call each of the top vendors before its renewal date with a competitor’s quote in hand. One call each. Most of them run fifteen minutes.
5. Move the saved money into a hire, a raise, or your own compensation, on purpose, in the same pass. Money that doesn’t get reassigned quietly turns back into a new subscription by the following year.

Top-performing firms in Schwab’s benchmarking work already run this discipline in some form, which is part of why they spend 25% less time per client on operations than their peers.

What Running The List Actually Bought Neil Back

Neil didn’t send the fee letter. The afternoon and the five calls that followed it covered most of the cost of moving his associate onto full planning work, which was the growth step he actually wanted and had been telling himself he couldn’t afford. His fee was never the problem. His renewals were.

Most small firms have more room in the expenses than they think, and they find it late, usually while getting ready to sell and discovering that a buyer runs exactly this list on the way in. The line-by-line version of the review goes deeper on each category. The practice overhead checklist is the companion piece, and the office question covers the occupancy line on its own.

Our goal is to save firms money while increasing efficiency.

For more on the numbers behind a firm that keeps what it earns, see our practice management library.

Sources

Fidelity 2024 RIA Benchmarking Study and the 2025 InvestmentNews Advisor Benchmarking Study, via InvestmentNews. Schwab RIA Compensation Report, via InvestmentNews. Investment Adviser Association Industry Snapshot, via InvestmentNews. Outsourced portfolio management fees from a survey of more than 1,350 RIA firms, via COMPLY. Technology spend via Docupace. Software adoption and operations time from Schwab’s 2024 RIA Benchmarking Study, via ClientWise. Errors and omissions insurance costs via SmartAsset and Insureon. Texas single-IAR and sub-$100M share from Ritz Stevens’ analysis of SEC IAPD Form ADV filings, 1,046 of 1,405 non-ERA Texas firms reporting one investment adviser representative and 1,145 of 1,206 reporting under $100 million as of the current feed.