As RIAs grow, more hiring chief operating officers to manage their firms

Adding key person to run day-to-day business so advisers can focus on clients, prospecting

Nov 17, 2013 @ 12:01 am

By Megan Durisin

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David Wright is facing a pleasant predicament.

Since 2008, assets under management at Sierra Investment Management Inc., the registered investment adviser he co-founded in 1987, have more than tripled to $1.75 billion, and head count has nearly doubled to 20, so Mr. Wright has been forced to look for extra help managing the business.

“We all love portfolio management,” he said. “None of us likes to do [human resources]. Not one of us wants to be in charge of staff reviews or dealing with the landlord.”

Mr. Wright is part of a growing number of RIAs on the hunt for a chief operating officer to run the day-to-day business, giving advisers time to focus on prospecting for clients and managing portfolios.

“It's just part of this evolution from these being practices to being businesses that have real enterprise value and owners who want to have an enduring firm over time,” said Bob Oros, executive vice president of RIA sales at Fidelity Investments. “We've witnessed an interesting, seminal moment for many advisers where they need to make a decision” — essentially, continue to run the firm yourself or hire out the duty and have more capacity as a planner and owner.

More and more firms are expected to start looking for the extra help as the RIA industry continues to grow at a fast pace.

Thirty percent of the 1,000 firms surveyed in The Charles Schwab Corp.'s 2013 Benchmarking Study reported that they plan to double in size within the next five years. Another 23% said they will double within six to seven years. The median firm surveyed managed $572 million in assets at the end of 2012, an increase of 13.3% from the previous year.


RIAs also are spending 73% more time and resources on risk and compliance, compared with 10 years ago, tak-

ing valuable time away from business development and client service, according to the 2012 Fidelity Executive Forum Poll.

“A lot of founders and principals think of themselves as the president,” said Neesha Hathi, senior vice president of adviser technology solutions for Charles Schwab. “Some of them are realizing that more of their money is in business development, and it's better to bring in a COO or a president to take over the business management.”

With a background in financial services and wealth management, Craig Cmiel was hired as a managing partner and COO at Solamere Advisors in Charlotte, N.C., in January. He has assisted in creating team meetings and building a greater marketing presence, and is helping the firm acquire or merge with two other RIA firms by the end of the year to increase Solamere's assets by 50%.

The company has also outsourced its accounting, legal and website maintenance roles.


The founders of Solamere have skill sets that they used at larger companies, and are typically focused on client relationships, financial planning or investment management, Mr. Cmiel said.

His role has a wider scope.

“I think what they felt that they needed was someone who could write and execute a business plan to allow them to really grow, and run the day-to-day,” Mr. Cmiel said.

Asset growth is one of the key triggers that cause RIAs to start looking for managerial help, said Christine Gaze, director of practice management at TD Ameritrade Institutional.

“Often something that plays a significant role in determining the business growth trajectory is if or when to decide to bring in dedicated management so they can continue to stoke the fire of the growth development of the firm,” she said.

At $1.5 million in revenue, about 50% of firms have at least one dedicated management position in place, Ms. Gaze said.

By $3.5 million, that goes up to about 90%.

Statistics from a TD white paper, “Breakout Growth: Adding Key Positions to Unlock Growth Potential,” show that firms with such positions report 36% more income per owner than similarly sized firms without them.

Creating dedicated management positions can aid in branding and succession planning, as larger firms bring in new generations of leadership with the aim of giving them a stake in the company, Ms. Hathi said.

Hiring a COO or chief executive also can help a firm maintain a stronger level of personal interaction with clients by creating more-consistent intake procedures and work flow processes, she said.

“You often hear in our industry, "You can't scale relationship,'” Ms. Hathi said. “You can, but you have to take that information and put it into systems so other people in your firm can create the same relationship for the person.”

Jerry Luff said that enhancing client services has been one of his priorities since he was promoted to COO at Baker Ave Asset Management in 2009, from a background in client relations and asset management.

The first item on his checklist in the new role was refining the customer relationship management system to im-prove processes when clients enter or leave the firm. Since then, Mr. Luff has dealt with everything from HR to information technology to compliance.

“Client services and marketing ... can abso-lutely lead to top-line revenue and new assets under management,” he said.

“At the same time, you can improve the bottom line by ensuring contracts are negotiated and shopped around,” Mr. Luff said. “If you're just focused on clients and bringing in clients, you can't focus on the bigger picture.”

Making the transition from a background of working with clients daily was a challenge at times, but Mr. Luff said that the firm's growth necessitated designating more people to run the business.

Baker Ave is about halfway to its $2 billion goal in assets under management, he said.

“It's tough to take people out of certain roles and into others,” Mr. Luff said. “They're used to bringing in clients, and you have to dedicate them to do something different.”

Some RIA firms look outside the industry to bring in top talent for their new management roles, something Mr. Oros said that he recommends because outsiders have no preconceived notion of the business.

“You don't get the rationalization of someone who's grown up in the financial advisory business and might rationalize away some of the things we've seen,” he said.

The Financial Network Group Ltd. hired Martin Murray, a chemical engineer, as its chief operating officer three years ago. He previously had spent 28 years at The Procter & Gamble Co., where he managed a team of hundreds doing research and development work on shampoo, cosmetics and other consumer products.

At the time that Mr. Murray joined FNG, he had more expertise in mascara than mutual funds.

“I think about money as the ultimate consumer product,” he said. “When you would talk to me about mutual fund portfolios, [I would be] thinking "What's the code word for that in the world I used to know?'”

At FNG, Mr. Murray worked to install clearer procedures and ensure that all the employees are aware of their roles and goals at the firm. FNG has grown to 13 financial advisers, from three, and has added a chief financial officer and managing director of investments, among other positions.

Nathan Bachrach, FNG's chief executive, said that he knew he needed to hire a COO when he realized that the firm was having trouble meeting its goals, both internally and with clients.

Something had to change.

“The question, real simply put, is, did we want to continue to be a practice or did we want to become a business?” Mr. Bachrach said.

Since Mr. Murray's arrival, Mr. Bachrach said that the company has built an improved team environment.

It also knows how to better manage its media brand, Simply Money, and the management message is more consistent, Mr. Bachrach said.

“[Mr. Murray] brought a consultant's view, which is an outsider who just starts at Square One and doesn't accept any of our assumptions,” he said.

As COO, Mr. Murray said that his strengths come from spending most of his career outside this industry.

Before taking on the role, he spent time consulting for a few Fortune 500 companies, as well as doing some work for FNG.

The new position is a 180-degree shift from his work at Procter & Gamble, but Mr. Murray said that he enjoys using his old skills in new territory.

“I'm looking for things that don't fit — the noise in the system. It's a logic kind of game,” Mr. Murray said.


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