Outside voices and views for advisers

Time for RIAs to break out of the cottage industry mold

Tips on creating a real business to attract more clients and employees

Jun 10, 2015 @ 11:12 am

By Matt Sonnen

+ Zoom

More often than not, RIAs spend all of their time and energy focusing on their clients and very little on the management of their businesses. Mark Hurley and the Fiduciary Network reported that more than 90% of the independent wealth management industry (approximately 19,000 firms) is made up of tiny enterprises that they termed “books of business.” Their report noted: “[These firms] do a great job of advising their clients, [but] have low annual revenue, few, if any, capable successor professionals and no obvious strategic plan. In reality, [they] are better described as 'jobs' rather than 'businesses.'”

With over $1 trillion in client assets now managed by independent advisers, isn't it time these firms emerged from their cottage industry roots and matured into real businesses?


When a firm first launches, it is understandable that the founding principals will wear many hats. As that firm continues to evolve, however, everyone needs to specialize in what they do best. Too many RIAs have their primary rainmaker splitting time between client service, business development and managing the business. A dedicated resource needs to be hired to focus on technology, legal/compliance matters, human resources and budget, so the rainmaker can focus on his or her strengths — servicing the firm's largest clients and finding new assets for the firm.

Too many RIA firms have no idea how their business is shaping up compared with last year and no clear vision of what the business will look like 12 months from now. The leader of any business should be able to answer these questions: How is my business looking … right now? What asset classes/product lines are driving revenue for the firm? Can we afford a new sales assistant? Is that new adviser brought on six months ago meeting goals and are those goals (still) clearly defined? Today, the answers to these questions should be a mouse click away.

(More: Industry hurdles hinder entrepreneurial advisers)

Getting a handle on your business' data is essential to making key decisions about your organization. Today we are looking at your people and your clients. How you serve your clients and how you develop your next generation advisers and associates will be important in determining the long-term success of your firm.


With a proper dashboard in place, every RIA should know its revenue per client. Not only that, the firm needs to know which clients are driving revenue. How much time is spent with each client, and are different levels of service offered for different tiers of clients? It only makes sense that more time be spent with clients that produce more revenue, but many RIAs find that the principals of the firm are spending a disproportionate amount of time with smaller-revenue clients.

As the firm grows, it should conduct a cost-benefit analysis and have an honest discussion around fees. Most RIAs are underpricing their services and could see an immediate boost to the bottom line if minimum fees were increased (this will also immediately better align the top producers' use of time).


Along with client segmentation, the principals need to get used to handing over client relationships to the next generation of advisers within the organization. It is impossible to grow if three or four principals are required to attend every client meeting. As the business continues to evolve, at some point the principals need to release the reins and allow the next generation to saddle up. This will allow the rainmakers to focus on the firm's largest clients, and more importantly, to bring in new business, while the existing clients continue to receive responsive client service.

(More: The advice industry's age discrimination problem)


Ask nine out of 10 RIAs how they plan to grow the business, and they will say “referrals.” These advisers literally wait around for the phone to ring, never proactively asking their current clients to introduce them to other potential customers. Part of this results from fear of the Securities and Exchange Commission advertising rules (particularly those regarding social media), but mostly it is a case of bad habits. Many RIAs have reached a certain asset level and simply gotten comfortable with the status quo. There are countless studies showing that the average age of RIA clients is rising, and those clients continue to consume, rather than invest, their portfolios. It is imperative for the long-term viability of each RIA business that it continues to replace or augment older clients with new, younger clients.

Once you have these systems and culture in place, you are ready to take on new opportunities for growth.


So many firms still rely on Excel for calculating and printing their billing or to hand-calculate their performance each quarter. Far more cost-effectively, an RIA today can have a fully integrated ecosystem that rivals the technology platform of the large wirehouses. The firm's reporting software should be integrated with the order execution/rebalancing software, which should be integrated with the CRM system, which should be linked to the financial planning and research software. This integration will not only save time and money — even if it has to be produced by an outside vendor — it will remind everyone in the firm that this is a real business designed to meet every client's needs in a dynamic and timely fashion.


I, like most in the investment community, have been very slow to adopt social media. The SEC has been very vague on what kinds of posts, tweets, updates and 'likes' are allowed under the advertising rules and which would violate them. That is no longer an excuse. There are several powerful and sophisticated tools that help you manage your online marketing but also keep you compliant.

Engaging with clients, prospects and your centers of influence online and demonstrating knowledge and competence is essential to gaining people's trust. Create a blog. Post articles to the firm's website. Use as many outlets as possible to stay relevant in the online world. Keep in mind: Once committed to creating and sharing content, you must continue to do so; nothing looks worse than a stale blog or Twitter feed.

(More: Joe Duran: Surviving change at warp speed)


Now that we have gone over these key parts of the RIA business, the benefits of improving the technology, operations, and marketing of your firm are abundantly clear. It increases the value of your business and sets it on the proper footing for long-term success.

To expect a premium valuation someday, one needs to prove that a business was indeed created. No one will invest in an RIA that is not easily scalable and is nothing more than a simple collection of clients all reliant on one or two principals. Without operational efficiencies, a clearly defined plan for the continued growth of the firm, and an empowered next generation of advisers trained and ready to take the reins at some point in the future, there is no terminal value. And there clearly won't be a premium terminal value placed on the firm.

Most importantly, these action items discussed will create a succession plan. After principals toil in those trenches for 10, 20, or even 30 years, it is important that the trenches not crumble when the principals climb out. By creating a real business, not only will more clients be attracted to the firm, but capable employees will want to join and grow the organization. It's a business legacy you're leaving behind.

Matt Sonnen is a vice president at Focus Financial Partners.


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