Tuning in to adviser needs with ensemble practices

Feb 27, 2014 @ 12:01 am

By Tom Daley

Ensemble and super ensemble practices are becoming the most popular choice of business model for independent advisers.

Ensembles are very focused on growth and mitigate operational costs by “partnering” in a sense or outsourcing to an affiliated broker-dealer, RIA custodian or clearing firm. Very much like top law firms or medical practices, ensembles leverage outside resources to help them run as efficient organizations. Ensembles look to their partners to provide:

• Automated oversight and compliance responsibilities

• Practice management tools and strategies

• Independent investment research

• Marketing support and resources

In 2002, the average participant in a Moss Adams Adviser Compensation Study, was a sole practitioner with $350,000 in production, $25 million of AUM (assets under management) and three staff people.

Fast-forward to 2013, and the average participant is an ensemble firm with $2 million in production, $200 million in AUM and a staff of seven. (Source: 2013 InvestmentNews/Moss Adams Adviser Compensation and Staffing Study.)

This data follows a trend we've witnessed anecdotally in the marketplace as well. Here's why.

• To begin with, transitioning to a solo practice is more costly at the outset than tucking in to an existing practice. Learn more about the costs of going solo. Once established, solo practitioners are often very profitable as long as they are extremely mindful of managing expenses as they continue to grow and service their clients.

• This is not always as easy as it sounds and as an alternative, a number of these solo practitioners gravitate toward ensemble practices. These are fully mature organizations looking to their broker-dealer or clearing firm partners to provide beyond the tools needed to be professional advisers.

• By far, the majority of an adviser's operational expenses are spent on staffing—compensation, benefits and training. As part of an ensemble, outsourcing to the right broker-dealer, custodian or clearing firm cuts down on these long-term expenses while creating greater efficiencies.

• For the adviser with the desire to be independent but not necessarily an entrepreneur building a business from the ground up, the ensemble practice is attractive. In response, firms are presenting more choices for advisers than ever. Many branches and RIA hybrids have profiles and offerings that can compete head-to-head with larger firms.

And the broker-dealers aren't the only ones attracting advisers with the ensemble model. Independent RIAs are recruiting advisers with this philosophy while leveraging relationships with RIA custodians/clearing firms.

*Tom Daley is the founder and CEO of The Advisor Center, a strategic partner to InvestmentNews and the InvestmentNews Career Center.

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