Registered investment advisors looking to build sustainable, growth-oriented firms need to think outside the usual parameters of assets under management and new clients, according to a panel of speakers at Wealth Management EDGE, held at The Boca Raton resort in Boca Raton, Fla.
“If the conversation around growth actually looked a little bit more closely at revenue, than it did assets, then I think you’d have a different way of really structuring for future growth,” said Mark Bruno, managing director, head of strategic advisory, Emigrant Partners.
Bruno said that when considering RIAs with $3 billion in assets and up, many are working with clients who have adult children. These firms can grow their revenue by addressing a family’s various needs.
“There are more and more firms that are doing a very good job positioning themselves, not just as risk-driven advice or financial planners, which they do really well, but also adding the right services that are not just investment advisors,” he said. “They’re really thinking about, ‘how do I own every aspect of the financial life, not just for the mother and father, but for all the children?’”
Kay Lynn Mayhue, president of Merit Financial Advisors, said the RIA is offering a variety of adjacent services in demand from clients. These include cybersecurity to mitigate threats to their investments or elder care advice for clients who are aging or their families.
“The RIAs of the future are going to be the ones that are thinking about how to build a relationship that’s so impactful that if someone [asks] what do you pay for your advice, they would say ‘I have no idea, but that they are worth every penny of it, because you’re just providing so much value to that relationship,” she said.
Nate Lenz, CEO and founder of Concurrent, said RIAs are at different stages regarding these services. He noted that many who are in the more entrepreneurial stage are still building books of business and are focused on organic growth, including some of the firms that have joined Concurrent’s 1099 model.
Meanwhile, there are those who may be working toward selling to an integrator.
“I do think there’s space, really, across the lifecycle of these businesses, for different models,” he said.
The three panelists agreed that, no matter what the model for the future, RIAs need to consider the next generation of talent that will take over the sector. Lenz said the RIA space has “done a notoriously bad job of cultivating talent in the space.”
However, he isn’t as concerned with the forecasts of a massive advisor shortage.
“I think some of the advancements in technology are going to serve more clients,” he said.
Bruno agreed that the predictions of an advisor shortage are likely overblown. But the industry should keep in mind all of the other “more institutional” roles, such as marketing or operations.
“If we take a more expansive view and we stop thinking just about the roles we need to fill in terms of client-facing advisors, and we start thinking about those force multipliers, that’s what is really going to move the industry forward,” he said. “Naturally, that makes us all better and produces more opportunities to tap a significantly larger talent pool.”
During a separate panel on future-ready firms, Rob Mooney, CEO and managing partner, Snowden Lane, spoke to the success of having advisors work in distinct, focused teams that can grow over time.
“We feel that teams bring superior resources, assets and expertise for clients,” he said.
Mooney said the team model is his ideal setup for recruiting new advisors and staff.
“Teams have an ability to retain talent that is right for them,” he said. “They are closest to the talent, closest to the business and they know what they are looking for.”
He said bringing large teams into an RIA can be very difficult regarding setup and integration.
“There is a balance there where you’d rather bring in a smaller team and build upon it,” he said.
Kate Healy, CEO and founder of AdvoKate IQ, agreed that the team model is also a good way to develop young talent as they can work with other senior people.
She also noted that if an RIA needs work done that is not available from the team, you can supplement it with temporary placements.
“You can borrow talent,” she said. “You may need someone on a fractional basis. … Not all talent has to be permanent, and that’s something that adds a lot of flexibility to the pressures you have on hiring and compensation and so forth.”
Merit’s Mayhue said it’s important for firms to engage the next generation through ownership potential.
“I don’t know how many times I have sat down with someone that’s looking at potentially partnering with Merit, or they’re kicking the tires on a number of folks, and they haven’t equitized their next-gen talents,” she said. “I tell them, ‘Do you know how much your firm would be, as far as more valuable as an enterprise if you equitize your people?’”
At Merit, Mayhue said they have created a clear track to an equity seat if that is a goal.
“That goes to that ownership and partnership mentality that we are really going to need to get at that next gen,” she said.
The panelists also agreed the RIA space is overall in a period of experimentation.
“I think the RIA industry is still very much a non-finished product,” said Emigrant’s Bruno. “If you’re running a business that has been successful for 10, 15, 20 years, have the ability to try a lot of different things that you’ve never done. Don’t be afraid to fail. I think the need for advice is still much larger than the market firms that are providing it—so try some new things even if it costs you a little bit of money—you’ll still learn, so be curious.”