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Ep.10: Mark Tibergien: What it Takes to Compete as an RIA Today
13 Plays7 months ago
In today’s wealth management landscape, RIAs face an evolving set of challenges and opportunities like how to create enterprise value as they transition from running a practice to running and growing a business.
While conventional wisdom tells us that “bigger is better,” as RIAs strive to get to the next level should their growth strategies focus on more than just size? In this episode, Management Consultant Mark Tibergien joins co-hosts Bill Coppel, Chief Client Growth Officer at TradePMR, and Ryan Neal, Senior Editor at TradePMR, to address this topic. Listen as they explore:
What’s important for growing firms if it’s not just size The difference between “size” and “scale” and why it matters Three things growing RIAs might want to avoid Subscribe now, and connect with us on social media:
YouTube LinkedIn Facebook Get the transcript for this episode, with sources, at synergizepodcast.com. About Mark Tibergien: (https://www.linkedin.com/in/marktibergien/) Mark is a consultant on management, strategy, and transition issues in the financial services industry. From 2008 to 2020, he served as Chief Executive Officer of Pershing Advisor Solutions LLC, an affiliate of Pershing LLC and a division of BNY Mellon. He currently serves as Advisor in Residence for Ernst & Young’s Wealth & Asset Management Group, as an independent director of Pathstone (a multi-family office business and RIA), and as an Advisory Board Member of Commonwealth Financial Network. Mark has been a monthly columnist on business management topics for Investment Advisor/Think Advisor, and is the author of four books published by Bloomberg Press/Wiley & Sons: - Practice Made Perfect, - How to Value, Buy or Sell a Financial Advisory Practice, - Practice Made (More) Perfect, - The Enduring Advisory Firm Mark Tibergien and Mark Tibergien Insights, LLC are not affiliates of TradePMR. More About Mark: LinkedIn: https://www.linkedin.com/in/marktibergien/ If you want to join the conversation or connect with us, please visit us at synergize.advisorevolutionsciences.com. This content is provided for general informational purposes only. The views expressed by non-affiliated guest speakers are their own, and do not necessarily reflect the opinion of TradePMR or its affiliates. TradePMR and its affiliates do not endorse any guest speakers or their companies, and therefore give no assurances as to the quality of their products and services. This channel is not monitored by TradePMR. TradePMR does not provide investment advice, tax advice or legal advice. TradePMR is a Member of FINRA and SIPC. Trade-PMR, Inc. is registered with the Securities and Exchange Commission (SEC) and the Municipal Securities Rulemaking Board (MSRB). TradePMR provides brokerage and account services to registered investment advisors. Custodial services provided by First Clearing. First Clearing is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company. Copyright 2024 Trade-PMR, Inc. For a transcript of this episode, with sources, visit synergize.advisorevolutionsciences.com
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Transcript
Welcome and Episode Introduction
00:00:01
Speaker
Welcome to Synergize, unscripted conversations where we explore the evolving role of the financial advisor in an emerging AI-driven world.
00:00:11
Speaker
Join us as we bring together thought leaders across a range of disciplines and industry experts, sharing insights designed to help RIAs thrive in the industry of tomorrow.
00:00:22
Speaker
Hi, this is Bill Capell, Chief Client Growth Officer at Trade PMR.
00:00:27
Speaker
And I'm Ryan Neal, the Senior Editor at Trade PMR, and welcome to Synergize.
00:00:33
Speaker
So Ryan, I think we've got a very interesting episode today with a very special guest.
00:00:39
Speaker
Tell us a little bit about what you think we're going to hear.
00:00:42
Speaker
So we've talked a lot on Synergize about RIA seeking to grow and the evolving set of challenges and opportunities they face in the modern landscape.
00:00:51
Speaker
And one of those questions I've had is when advisors out there are trying to create enterprise value, when they transition from running an independent practice to now growing a business, right?
00:01:02
Speaker
Going from just a shop that you set up and you run to actually a firm that's growing and hiring people.
Strategic Growth for RIAs
00:01:09
Speaker
There's this adage that bigger is better when it comes to growing a firm and scale, right?
00:01:15
Speaker
But as you strive to get to that next level,
00:01:18
Speaker
What should RIAs focus on when they're rather than size?
00:01:21
Speaker
What should RIAs be thinking about as they want to get to that next level?
00:01:24
Speaker
Those are great topics, Ryan.
00:01:26
Speaker
And, you know, I think it's important because given the environment we're in today and the growth opportunities, RIAs are really asking these kinds of questions to figure out what, you know, what the best move is for them.
00:01:37
Speaker
And some of our listeners are at some point or stage in the development of their business.
00:01:43
Speaker
They may be going from sort of a partnership into a business or they're stuck between a business and a firm.
00:01:51
Speaker
And getting around those hurdles is something that's going to be challenging for them.
00:01:56
Speaker
And I think that one of the topics that we'll talk about today really addresses that.
00:02:01
Speaker
And it's, you know, one of the important things here is when we start to think about navigating these transitions, I believe it starts with getting a clear understanding of how, in fact, we're going to define and measure success.
00:02:14
Speaker
And that's what our guest, Mark Tabersian, is here to share with us and talk about his perspectives on this topic.
Mark Tabersian on RIA Evolution
00:02:21
Speaker
Mark is formerly the head of Pershing Advisor Solutions and is now a consultant on management strategy and transition issues in the financial services industry.
00:02:32
Speaker
Mark, thanks for joining us today.
00:02:34
Speaker
Thanks for including me.
00:02:36
Speaker
Let me start with this question.
00:02:38
Speaker
Clearly, you spent a large part of your career in the wealth management industry and specifically the RIA business.
00:02:46
Speaker
Broadly speaking, how have you seen the competitive landscape evolve for RIAs and how might they be thinking about how they are going to compete today and achieve this notion of sustainable growth?
00:03:06
Speaker
It's been interesting to observe the evolution of what I call the retail RIA, because as we know, this model has been around since the 1940s, and in fact, in some forms before that.
00:03:18
Speaker
But it wasn't until the 1980s that the true retail version of it started to occur when individuals who wanted to become financial advisors recognized that there was a fiduciary role that they could play instead of being a professional salesperson.
00:03:35
Speaker
So what happened was that this creation of small practices turned into large practices, then turned into large businesses.
00:03:44
Speaker
And now we are seeing true enterprises as fragmentation goes to consolidation.
00:03:51
Speaker
I think that what's been interesting through this evolution is as we consider...
00:03:57
Speaker
Some of the catalysts for the change is that the emergence of the CFP or the financial planning profession changed the way in which advisors related to their clients because it was no longer just about investments.
00:04:11
Speaker
I think that what we found was that as people were not just managing a book but managing a business that they took more of a team or ensemble approach to relating to their clients.
00:04:22
Speaker
I think that they found that there is a demand for the types of services that they were providing and that it tended to be more objective and not tied to generating a sale, but rather to impacting the lives of others.
00:04:36
Speaker
The challenge, though, is that every RIA firm tends to use the same language.
00:04:43
Speaker
And so the competitive differentiation is not clear if you go from one website to the other or look at collateral material from one to the other.
00:04:52
Speaker
This whole notion of we're working for you, we're a trusted advisor, we're a fiduciary, is now expected.
00:05:01
Speaker
It's a hygiene factor.
00:05:03
Speaker
It isn't a differentiator.
00:05:05
Speaker
The question now is how will those who truly are building a business will think about how they are perceived differently by their target market, by their optimal client, and how they will compare to others who are pursuing the same type of client.
00:05:21
Speaker
And that, I think, is where we see the big differences today.
00:05:26
Speaker
So that's interesting that that's where we're at today versus where we were, you know, when you got into this industry to begin with or when RAS first started.
00:05:36
Speaker
Where do you see it going from here?
00:05:38
Speaker
Where do RAS need to be thinking about?
00:05:41
Speaker
Where are they going to be evolving?
00:05:43
Speaker
So that we start talking about that differentiation now.
00:05:46
Speaker
Where do they have to be going in the future?
Challenges in the RIA Industry
00:05:50
Speaker
Well, like all industries, what we have observed is that the RA business is going from fragmentation to consolidation, from consolidation to integration, and once they accomplish integration, then to expansion.
00:06:05
Speaker
So there's a natural sequence in every industry I've ever touched has gone through this transformation from accounting firms to banks to funeral homes to tire dealerships.
00:06:16
Speaker
It's all the same thing that occurs because we're fundamentally dealing with small businesses.
00:06:21
Speaker
So in the RIA world, there are several things that will impact the way in which firms are contemplating their differentiation and their opportunities for growth.
00:06:31
Speaker
But first, we have to look at some of the challenges that exist in the business.
00:06:35
Speaker
We recognize it, it's been a very labor intensive business that even though technology is ever present, the reality is that it's still heavily dependent on humans for much of the activity.
00:06:49
Speaker
The pricing is still asset based, even though they're proposing to do so many more things for their clients and just manage the assets.
00:06:58
Speaker
It's a high margin business.
00:07:01
Speaker
And that means that there is a disconnect between the price and the value in some cases.
00:07:06
Speaker
And that the knowledge is being more commoditized as the public is becoming more familiar with the financial decisions they have.
00:07:15
Speaker
And so what we generally see is this opportunity for others to come into the market to disrupt those factors.
00:07:23
Speaker
And I think ultimately what this means for most firms is there again is a linear process for them to follow.
00:07:30
Speaker
It begins with a strategy.
00:07:31
Speaker
What business are they're in and who's their optimal client?
00:07:34
Speaker
It begins with a strategy, follows a structure, people, process, and ultimately how does that translate into profitability and value.
00:07:43
Speaker
So this is where we look to change and recognize that even though every RIA is in the business of transforming or helping the lives of their clients, in reality, the way in which they do it and the way in which they position themselves could be different.
00:08:00
Speaker
Very quickly, just when you talk about new entrants, where do you see that right now?
00:08:05
Speaker
Because that was a big topic of conversation for many years.
00:08:08
Speaker
When you talk about this new entrants, what should advisors be looking at?
00:08:12
Speaker
Well, we can look at new entrants or revised entrants.
00:08:16
Speaker
For example, Schwab and Fidelity, two of the largest custodians in the business, are also two of the largest retail financial organizations in the business.
00:08:27
Speaker
And so that's a good example of where a threat can come from within.
00:08:33
Speaker
We also see virtually every broker, dealer, and insurance company trying to figure out what to do about the threat of the RIA business because that's where the asset flow is going.
00:08:45
Speaker
And so some are transforming the way in which they're doing business.
00:08:50
Speaker
In fact, including creating platforms for non-FINRA registered financial professionals.
00:08:56
Speaker
And others are actually creating channels that are either owned by them or supported by them.
00:09:02
Speaker
We could look at them as custodians or platforms or in some other form.
00:09:07
Speaker
The third is that we also see foreign organizations looking at this business and saying, we'd like to replicate the RA model in the UK or Canada or Australia or Japan.
00:09:21
Speaker
But frankly, we might want to learn about it by coming into the US and acquiring one of these firms that way.
00:09:28
Speaker
I think the fourth element is that the private capital that has come into the market to fund the consolidation of the industry has created a new dynamic because now we just don't have practice versus practice.
00:09:41
Speaker
We have business and enterprise versus other business and enterprise.
00:09:45
Speaker
And these are privately funded, private equity funded companies that have a true profit motive and a growth motive that is going beyond just
00:09:57
Speaker
individuals wanting to practice their craft.
00:10:01
Speaker
That's a whole new differentiator and dynamic in the business that we have to be conscious of.
00:10:05
Speaker
Yeah, Mark, I'd like to drill down on it a little bit because you raise a really a couple of really interesting points here.
00:10:10
Speaker
This notion of businesses and enterprises competing against what we're traditionally practices and what comes to mind in a buzzword that we're hearing a lot about today is scale.
00:10:21
Speaker
Talk to us a little bit about how you see scale playing into this, particularly for the traditional RIA that's actually achieved firm status, if you will, now competing against these much larger enterprises.
00:10:34
Speaker
Does scale play something, does it play an important part?
00:10:38
Speaker
And, you know, begs the question, is bigger necessarily better?
00:10:42
Speaker
Well, the first point I'd make is the industry tends to confuse the word size and scale.
00:10:49
Speaker
They are not the same.
00:10:51
Speaker
So you could be acquiring practices that are in different locations, but still not achieve scale.
00:10:57
Speaker
So scale is the circumstance where revenue grows faster than expenses.
00:11:03
Speaker
Then you know that you're accomplishing what you want to do.
00:11:06
Speaker
You may be able to do that on a firm-wide basis, but are you doing that on a location-by-location basis or even a market segment-by-market segment basis?
00:11:14
Speaker
And I think for the most part, most firms are not accomplishing that yet.
00:11:19
Speaker
The second point is that even though we have larger firms now due to consolidation, very few of them truly are branded firms where they are recognized in the market.
00:11:32
Speaker
The one exception might be Fisher because he has a substantial national television budget and so has created some brand presence among certain types of investors or consumers.
00:11:45
Speaker
But the reality is that unless you're recognized as one of the top three providers in your market, either by segment or by geography, then you're not truly a branded or scaled enterprise yet.
00:11:58
Speaker
And that probably is where the next phase is going to occur.
00:12:02
Speaker
But going to the question of whether scale is going to make a difference, it can make a difference if firms are applying technology in an integrated and useful way.
00:12:12
Speaker
But if they're also creating career paths, like in the accounting profession or legal profession or any other professional services organization, where you can push work down to lower level people who also use it as an opportunity to learn and grow.
00:12:27
Speaker
And so scale will be very difficult unless that change in the labor force changes.
00:12:34
Speaker
And there is true career pathing that goes on within these firms so that you can have the capacity to grow, which is now absent in most firms.
00:12:44
Speaker
Is it going to be possible, as we talked about earlier, that sort of evolution of the RIA business just as other industries have evolved and we're seeing it happen here with the consolidation, is it going to be possible to be an independent RIA practice or will rolling up and consolidation and aggregation and all that stuff, is that just the necessary next step?
00:13:08
Speaker
Well, independent, it's probably a misnomer anyhow.
00:13:12
Speaker
It's, you know, it's a question of whether the barbed wire is facing in or facing out, I guess, when we look at independence.
00:13:19
Speaker
So I think that as long as you're a fiduciary, you have to operate under a standard of practice that ensures everything you do is in the best interest of your clients.
00:13:32
Speaker
And that includes delivering value for the for price.
00:13:35
Speaker
But the good news is that investors or consumers who pick their advisors have thousands and thousands of choices.
00:13:43
Speaker
So they're not captive to it.
00:13:44
Speaker
The only difference might be in a company sponsored retirement plan, as an example.
00:13:50
Speaker
So so independence in terms of delivering advice probably won't be compromised because they have to adhere to standards that are promulgated by the permission and and enforced by the SEC.
00:14:05
Speaker
I think, though, in terms of running the business, there's always a question of if you have a passive shareholder in an actively managed business, will you be able to run the enterprise the way that you'd like to if you didn't have somebody from the outset coming in?
00:14:21
Speaker
And I think that puts a different strain on the firm, but it also puts a strain on the on the firms that are investing in these companies because you are operating in a regulated business.
00:14:33
Speaker
It's like it's like acquiring hospitals.
00:14:37
Speaker
You still have to adhere to to medical standards if you're if you're investing in that business.
00:14:44
Speaker
It would be as if you came into the accounting or legal profession.
00:14:47
Speaker
You still have ethical standards that you have to adhere to in order to do that.
00:14:52
Speaker
So I'm not sure that independence by itself is really the distinction.
00:14:56
Speaker
And in fact, I've never really liked that term too much, even when it applied to solo practitioners.
00:15:01
Speaker
But I think the notion that we find companies that are driven by growth and profitability as one of the added criterias just adds a layer of complexity to how these firms are going to be operating.
00:15:14
Speaker
Mark, let me ask this question.
00:15:16
Speaker
I've heard you talk a lot about this, and it's really around this notion of the value of attracting talent as a key factor in building a successful firm.
00:15:27
Speaker
And that makes complete sense to me.
00:15:29
Speaker
The question is, why are so many RIAs struggling with that?
00:15:34
Speaker
I think that this is probably...
00:15:39
Speaker
One of the characteristics of running a small business, for example, the SBA defines small business and financial services as a company with less than 100 million of revenue and fewer than 1000 employees.
00:15:54
Speaker
The 100 million of revenue is probably the hardest part for some of them to get to.
00:15:58
Speaker
I wouldn't worry so much about the number of employees.
00:16:01
Speaker
But generally speaking, you find that small businesses struggle to compete for talent because they don't pay at the same level.
00:16:07
Speaker
They don't have the same benefits.
00:16:09
Speaker
They don't have the prominence, even the branding that they're going to attract people.
00:16:15
Speaker
I've talked to the kids of many people I know who are looking for opportunities to work somewhere else, and I often introduce them to these so-called independent firms that you referred to, or RAs, that wouldn't even be on the radar, but end up being great places for them to work once they discover them.
00:16:36
Speaker
So,
00:16:37
Speaker
One of the branding opportunities for firms is to become recognized as the employer of choice and not just focusing on which clients they get, but which talent they get, because ultimately this will be the driver of growth within those firms.
00:16:50
Speaker
The good news is that there are over 200 universities and colleges around the country that now do either certificates or degrees in financial planning.
00:17:02
Speaker
There are clearly many business schools that do degrees in finance where individuals have the opportunity to come into this business.
00:17:09
Speaker
But generally speaking, as a profession, we haven't been good about attracting talent to this business.
00:17:17
Speaker
And what we find is a number of career changers that recognize it is financially rewarding.
00:17:23
Speaker
It's intellectually stimulating.
00:17:25
Speaker
You're profoundly impacting the lives of the people you work with.
00:17:31
Speaker
Just add long walks on the beach.
00:17:33
Speaker
It's a pretty good personal lab.
00:17:35
Speaker
That's right.
00:17:36
Speaker
That's right.
00:17:36
Speaker
You know, it's interesting that you bring up this notion of the certification out of a number of universities now for areas like financial planning and wealth management.
00:17:49
Speaker
And it seems that we've been playing this game of trading advisors from firm to firm to firm.
00:17:56
Speaker
That's traditionally been in the place of the warehouse with a check.
00:18:00
Speaker
And now in the RIA space, it's difficult to find an experienced advisor to bring on board that fits with you culturally, that can be additive right out of the gate.
00:18:12
Speaker
Do you think that the future...
00:18:15
Speaker
success lies in recruiting and training from the ground up?
00:18:21
Speaker
I think that it's always a combination.
00:18:23
Speaker
It's the nature of professional service businesses.
00:18:27
Speaker
that I think there tends to be a mistake to say you only want to bring in people who already have clients so that they pay for themselves instead of saying, I'm going to invest in human capital and in the development of people.
00:18:40
Speaker
And yes, it's possible that I'll train and develop somebody who starts their own firm or joins another firm and I'll feel like it's been a waste.
00:18:48
Speaker
But if you continue to build this whole
00:18:53
Speaker
presence as an employer of choice, then you'll win more than you lose in that case.
00:18:59
Speaker
It doesn't mean that you're not going to recruit experienced talent.
00:19:02
Speaker
But what you may end up doing is recruiting people who've been in the business two to five years where they haven't fully developed yet, but they they have some skills that they've developed.
00:19:11
Speaker
And now they're looking at how do they how do they join an organization that supports them that gives them the opportunity to grow that works with the types of clients that they want to work with.
00:19:23
Speaker
I think that this is where the true difference will occur within those firms.
00:19:27
Speaker
So again, as with every professional service firm, it's a combination of the old and the new that will be dynamic in any firm.
00:19:38
Speaker
It makes me think of an analogy that I experienced firsthand in media.
00:19:44
Speaker
Back in journalism school, they absolutely preached to us the value of so-called trade publications, things like in our industry, investment news, wealth management, et cetera, that cover a niche.
00:19:56
Speaker
And they'd always told us, great jobs, great experience, you get to do good reporting.
00:20:01
Speaker
You gain a niche, et cetera, et cetera.
00:20:03
Speaker
You know, we didn't listen.
00:20:04
Speaker
When we were young, we were in journalism school, every one of us wanted to be a New York Times columnist, or we wanted to be a, I wanted to be at an alt week, I wanted to work at the Village Voice and write about, you know, the punk scene, that kind of stuff.
00:20:16
Speaker
And so, you know what, no one listens.
00:20:17
Speaker
But then myself and so many of my friends, once you are midway through your career, opportunities start getting harder and harder to come by and you're looking to grow.
00:20:27
Speaker
I was given an opportunity to come to the trade space and learn this unique thing and a company I'd never heard of about an industry I'd never heard of and they were willing to invest in me and teach me and grow in this space and now I'm really thankful I did because I'm here with you guys but everything you were saying about that made me think so much of the media world and trying to get people to come work at a trade publication is tough, right?
00:20:50
Speaker
Well, what's interesting is there is always a time when we eventually become our parents.
00:20:57
Speaker
Ah, don't say that.
00:20:59
Speaker
You've been watching those progressive ads.
00:21:01
Speaker
Yeah, it's true.
00:21:03
Speaker
Exactly.
00:21:04
Speaker
So it's, I mean, I've had seven different careers.
00:21:08
Speaker
I, too, started as a journalist.
00:21:10
Speaker
My first job was writing and reading.
00:21:12
Speaker
Yeah, I started writing and reading obituaries on the radio, which prepared me well for this business.
00:21:19
Speaker
I've now come forward.
00:21:21
Speaker
We won't read anything into that, Mark.
00:21:25
Speaker
But I work for a newspaper and a local newspaper and a radio, and I, too, had visions of becoming Walter Cronkite.
00:21:33
Speaker
But he's gone, and so am I from that business.
00:21:36
Speaker
So I think that as we look at the evolution of this business and we begin to understand what success looks like,
00:21:46
Speaker
It's no longer a profession that's focused around building a book and making money and then you die.
00:21:53
Speaker
It's something greater than that.
00:21:55
Speaker
I think that
00:21:56
Speaker
how this profession has evolved is to how do you impact the lives of other people?
00:22:03
Speaker
And, and of course, you get rewarded well for doing it.
00:22:07
Speaker
If that's what you define a success, you certainly get the emotional and psychological rewards from from doing it well.
00:22:16
Speaker
But I think that knowing you can actually train and recruit individuals to come into a business that is so impactful,
00:22:26
Speaker
by itself has to be personally fulfilling.
00:22:28
Speaker
And that's what's exciting when you look at where this business is going.
00:22:32
Speaker
I couldn't agree with you more, Mark, on that because I've been in this business for quite some time and I have played the part of a financial advisor.
00:22:41
Speaker
And I think the great takeaway here is that it's not either recruiting or acquiring advisors with books of business, nor is it simply growing your own from scratch.
00:22:53
Speaker
It's a combination and there's so many factors involved in that.
00:22:57
Speaker
It's important.
00:22:58
Speaker
But I think there's a third player that's emerging on the scene.
00:23:02
Speaker
And that's generative AI.
Impact of Generative AI on RIAs
00:23:06
Speaker
And clearly we can see the impact that artificial intelligence and generative AI is having.
00:23:11
Speaker
It's removing a lot of the manual tasks that advisors used to have to perform, giving them more time to spend with clients, more time to win new business.
00:23:22
Speaker
But it's also in some respects beginning to put some real challenges on the value of the advisor if they're not doing what you said earlier in this conversation, distinguishing their value in a way that is compelling to not only their clients, but their potential clients.
00:23:42
Speaker
Talk to us a little bit about how you see AI, Gen AI playing out relative to the value of the intermediary.
00:23:50
Speaker
One thing we've seen over the history of this industry from from when the Buttonwood agreement was first signed to today is that things like electricity, phones, the telegraph.
00:24:05
Speaker
Indoor plumbing.
00:24:06
Speaker
Indoor plumbing all changed the way in which we function as a business.
00:24:11
Speaker
And generative AI is another example of where it'll be transformative, but whether it will actually replace the human is another thing.
00:24:20
Speaker
Will it enhance the way in which the humans...
00:24:23
Speaker
interact with their clients is probably an absolute truth, such as improving predictive analytics, helping people perform functions more efficiently and effectively than they have by just using the basic skills.
00:24:38
Speaker
And I think that I
00:24:42
Speaker
This is more your realm than mine, but I'm not sure to what extent it will replace the individuals in dealing with clients because there still is this emotional, empathetic element that is very important in advisors dealing with their clients.
00:25:00
Speaker
But I think it can change the way in which they operate more effectively and more efficiently.
00:25:05
Speaker
A good example of this is what we find is in a business that is
00:25:11
Speaker
Helping clients make financial choices, the only reporting they're getting is on the investment assets, not on the philanthropy or the estate planning or the financial planning decisions they're making.
00:25:24
Speaker
And so I'm intrigued to see how technology will change that dynamic in terms of what clients get from their advisors and how advisors can deploy these tools to be more complete and more holistic in how they interact with their clients, not just on an incident by incident basis, but on a systematic holistic basis that will be transformative.
00:25:48
Speaker
So when I look at the future of this business and how firms will
00:25:52
Speaker
maybe not differentiate, but just compete, is how they will incorporate these tools into a more comprehensive way in which they interact with their clients and how they use those tools to really begin to see patterns that can be transformative in how they guide clients through these decisions, not just in managing their assets, but in guiding them through all the decisions that they might make.
00:26:17
Speaker
You know, as you said earlier about professional services, I think more so now than ever, to your point, it isn't about IQ entirely.
00:26:27
Speaker
You've got to have that EQ component.
00:26:29
Speaker
And this is where the advisor plays or can play a critical role because while they can give the client all the facts, the guidance, it comes down to a decision.
00:26:41
Speaker
And I think this is where the
00:26:44
Speaker
emotional intelligence to the advisor becomes extremely invaluable in relating back to their clients.
00:26:49
Speaker
So I appreciate your insights there.
00:26:52
Speaker
Yeah, it is after all a human business.
00:26:56
Speaker
I don't know how you've gone through the decisions of seeking out your professionals, whether it's your doctor, your accountant, or lawyer, or to the extent you have an advisor, which we do.
00:27:08
Speaker
It truly makes a difference knowing that somebody on the other side is listening and responding.
00:27:14
Speaker
or at least absorbing what it is that you consider important.
00:27:19
Speaker
We're, you know, advisors are just like people.
00:27:22
Speaker
They have the same issues, but to the extent that they appreciate what the clients are going through and not using a standardized test for everybody really makes a difference in how they engage with
00:27:34
Speaker
So I think that this really defines what the culture of some of these firms will look like.
00:27:38
Speaker
Some are purely coin operated and they're going to focus on investment performance.
00:27:43
Speaker
And some are going to be more human and empathetic in how they relate to clients.
00:27:48
Speaker
And that's going to be a differentiator.
00:27:50
Speaker
And we as consumers have a choice of which one of those we'd rather work with.
00:27:55
Speaker
And, you know, as you said, when you're selecting a professional service, whether it's medical or accounting or law or whatever,
00:28:05
Speaker
Oftentimes we find ourselves asking someone we trust who they use.
00:28:10
Speaker
And when they give you that introduction or that referral, there's a huge likability factor between the individual making the referral and the service provider that they're dealing with.
00:28:21
Speaker
And this again points back to what you're suggesting that AI is not likely to fill that void, at least not while I'm alive anyway.
00:28:31
Speaker
I find myself in my role, not being an advisor myself, but having worked with the advisory community for as long as I have, that
00:28:38
Speaker
people will frequently ask for suggestions or referrals to financial professionals to guide them.
00:28:45
Speaker
And I've begun to ask more questions about what's important to them before I try to match them up to two different providers and to give them those choices.
00:28:56
Speaker
And it's really interesting when you talk to your friends about what would they consider important in any relationship.
00:29:04
Speaker
and begin doing that and you start to see real differences occur among them.
00:29:10
Speaker
And what that tells me is that advisors going back to your original question about how they're going to differentiate have to be thinking about these terms rather than saying, we are superior investment managers or, or we are certified, we're well educated.
00:29:29
Speaker
You know, those are about
00:29:31
Speaker
me, not about you as the client.
00:29:34
Speaker
And so changing this conversation to say, who is my optimal client?
00:29:40
Speaker
And what are the catalysts that tend to cause people to engage me going forward?
00:29:45
Speaker
This is going to change the way in which firms position themselves, I think, going forward.
00:29:50
Speaker
Great point.
00:29:51
Speaker
Now, how about for the growing firms?
00:29:55
Speaker
You talked about the difference between scale and size, and I'll go ahead and say I'm guilty party there on confusing those two.
00:30:01
Speaker
So what should firms be tracking?
00:30:04
Speaker
What are the important metrics out there today?
00:30:08
Speaker
everything you guys just said about, you know, EQ and changing the way that our advisors do business, what now should they be looking at and tracking what's important for a firm that's growing, I guess, if it's not just size?
00:30:23
Speaker
So I think that the financial metrics are clearly important from a business standpoint, but not absolute terms.
00:30:30
Speaker
I think when firms, for example, say we are X amount in assets or we have X number of people,
00:30:38
Speaker
That's answering the size question.
00:30:40
Speaker
What would be interesting to know is what are their what is the ratio of advisors to clients?
00:30:48
Speaker
What is the revenue per client?
00:30:50
Speaker
What is the profitability per client?
00:30:52
Speaker
What's the revenue per advisor profitability per advisor or per employee?
00:30:58
Speaker
So, I mean, from a financial standpoint, it's one number in relationship to another tells us if we're seeing material improvements over time in how the business is operating.
00:31:10
Speaker
But I think to the extent that we look at other measures of success, it relates to retention rate, growth rate, the number of services that we deliver to our clients.
00:31:24
Speaker
For example, are we tracking whether or not
00:31:27
Speaker
They're coming to us first with questions around taxes or state or philanthropy, or they're seeking out guidance from other people.
00:31:37
Speaker
So these are the sorts of metrics or measures that are going to tell us that we're either the valued provider or that we are just an implementer of one part of their life.
00:31:48
Speaker
And that will be transformative, I think, in how advisor firms think about their business.
00:31:54
Speaker
Can I sneak one more question in here, Ryan?
00:31:56
Speaker
Of course.
00:31:56
Speaker
This is your show, Bill.
00:31:58
Speaker
Come on.
00:31:59
Speaker
Mark, I saw in an article recently, you talked about the seven things advisors, the sort of fatal mistakes they should avoid.
00:32:07
Speaker
Do you remember that article?
00:32:10
Speaker
I do remember the article.
00:32:11
Speaker
Yeah.
00:32:12
Speaker
So we've been talking a lot about what advisors could be doing to grow their business and get over some of the hurdles.
00:32:22
Speaker
Could you share with us your top three things they ought to avoid?
00:32:26
Speaker
What to avoid?
00:32:28
Speaker
Well, that's great.
00:32:29
Speaker
I think that the first thing that advisors who are growing a business should avoid is thinking that they are the best leaders of a business.
00:32:41
Speaker
So we can be great technicians, but that doesn't necessarily mean that we're the best ones to develop a strategy or implement a plan or even manage people.
00:32:52
Speaker
So if that's something one aspires to be, then they have to invest in those skills just as they invested in their skills as an advisor.
00:33:02
Speaker
Secondly, I think that the next thing they have to avoid is being perceived as one dimensional in the services that they provide.
00:33:12
Speaker
And this is an example of the conversations I have with many people who are either bragging about the person they're working with on the investment returns they got or
00:33:21
Speaker
or are saying that they make all the decisions themselves.
00:33:26
Speaker
The question is whether or not they're perceived as being a reliable financial partner for their clients.
00:33:33
Speaker
And I think that avoiding being pigeonholed as a money manager is going to be incredibly valuable to these individuals and their practices or businesses going forward.
Managing Employee Turnover
00:33:46
Speaker
Third is I think they need to avoid high employee turnover for the wrong reasons.
00:33:53
Speaker
That when we look at success within a business, the question of how the people perceive you and the culture that you've created is extraordinarily important going forward because this is ultimately the lifeblood.
00:34:08
Speaker
So a good example of why this is important is for years now we've been hearing about the so-called great transfer of wealth.
00:34:16
Speaker
To me it's somewhat of a myth because a lot of those assets will be fragmented and there will be some very large wealthy families that transfer assets to their kids but for the most part people will be spending their own wealth and not passing it on to the next generation.
00:34:35
Speaker
And and besides, the kids really don't want to work with an old advisor, so they'd rather be working with their contemporaries.
00:34:43
Speaker
So by not developing this regenerative plan within your own business, you're really not creating continuity in an enterprise where you think you have value.
00:34:53
Speaker
Why is that important?
00:34:54
Speaker
Value is a function of the future.
00:34:56
Speaker
And if the future says, I've got a bunch of dead and dying clients and dead and dying partners, then it's a dead and dying business.
00:35:04
Speaker
We have to be conscious of that.
00:35:06
Speaker
Yeah, I've often said to advisors as I speak to them, if you're not willing to change, you don't have to.
00:35:11
Speaker
Just don't outlive your clients and you'll be just fine.
00:35:14
Speaker
Exactly.
00:35:16
Speaker
Well, this has been great.
00:35:17
Speaker
Thank you, Mark.
00:35:18
Speaker
As we wrap up our conversation, are there three things you can suggest for the RA industry at large that they can do to really improve the value of the industry for retail investors?
Future Directions for RIAs
00:35:30
Speaker
So I think the first thing that I would like everybody in this profession to consider or even invest in is financial literacy.
00:35:39
Speaker
And this would mean adopting their local school or adopting the school that they went to, to ensure that some level of personal financial education is provided to the individuals who go to that school, whether at high school or elementary school.
00:35:54
Speaker
I think that this is critical for the future of our country, because individuals need to take control of their destiny and not hope that Social Security and Medicare is going to bail them out when the time comes.
00:36:08
Speaker
Second, I would like to see this profession do a far better job of promoting itself as a place for people to work, that we can go into technology, we can go into private equity or venture capital.
00:36:28
Speaker
But the reality is that there are very few opportunities to make the kind of impact
00:36:33
Speaker
and be as fulfilled as a profession like this but it's generally not considered by enough people as as an appropriate career path and i think that the more we can do on a local and national level to promote that this would be good third i think from a pure business standpoint from an individual business standpoint
00:36:56
Speaker
What I would like to encourage everyone to consider is how do they define their optimal client in terms other than assets?
00:37:04
Speaker
And how do they begin to understand what the catalyst is usually for when they get these optimal clients?
00:37:11
Speaker
What are the patterns that they can understand?
00:37:14
Speaker
Because this ultimately will define what their strategy is going to be at least for the next five years.
00:37:20
Speaker
Well, everyone, we hope you enjoyed today's conversation.
00:37:23
Speaker
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00:37:33
Speaker
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00:37:41
Speaker
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00:37:48
Speaker
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00:37:56
Speaker
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Speaker
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Speaker
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00:38:18
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Speaker
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Speaker
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Speaker
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Speaker
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Speaker
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Speaker
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Speaker
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00:38:58
Speaker
For a transcript of this episode with sources, visit synergize.advisorrevolutionsciences.com.