Adviser’s Consultant: Luring breakaway brokers to a hybrid RIA

Alex Goss understands the benefits of economies of scale in the financial planning business. By preaching that message to breakaway brokerage reps, he has grown his business to well beyond $3 billion in assets less than four years after his own breakaway.

The chief executive of New Orleans-based Goss Advisors left Wells Fargo in November 2014 as part of a four-person team to launch a hybrid model with LPL Financial. At the time, the team was managing $520 million.

The hybrid registered investment adviser business now includes 70 advisers working out of 30 offices, including seven teams and approximately $700 million that it has added over the past six months.

“With what we have signed up and in the pipeline right now, we should be over $4 billion in assets by the third quarter of this year,” Mr. Goss said.

The key to his growth and recruiting strategy boils down to the presentation of basic math, he said.

“We call it independence 101,” Mr. Goss said. “We don’t talk about us, we have a conversation about what independence looks like, and when it comes to independence the top line says nothing about what you actually make.”

Mr. Goss understands well the appeal of a payout that promises to roughly double the 45% range typically found in the wirehouses.

However, he said, it is a mistake to chase the “mythical 90% payout” promised by the independent broker-dealer channel.

“It can cost you 15 to 20 basis points just to access those platforms,” he said. “That 90% ends up being 90% of 80%, before expenses, which can take that down to 50% or lower.”

By contrast, he said, “In the RIA world, when you do it right and with scale, you can net​ in the low 60% to low 70% range.”

As an RIA affiliated with a brokerage platform, Mr. Goss said he can “flip the script” by building scale and leveraging that scale to turn platforms and custodians into vendors that are competing for his business.

“When you go hybrid, all the sudden these firms become vendors and you have the option to use multiple custodians,” he said. “Then they really mean it when they say they have to earn your business every day.”

Mr. Goss’ ongoing pursuit of scale is largely accomplished by catching breakaway brokers before they head for the “soft landing of a corporate-independent affiliation only to realize it’s not what they need.”

“We’re trying to stop folks from going to the soft landing,” he said. “What we’re doing is similar to the way doctors leave hospitals and get together to create centralized operations and benefit through economies of scale.”

Mr. Goss recognizes that joining a network like his won’t appeal to every breakaway, just as every breakaway won’t appeal to his firm.

“The advisers I’m talking to are already successful, so they don’t need a marketing solution, and they don’t need a plan to capture 100% of clients’ wallet,” he said. “We tell people, if you’re happy where you are and don’t want to grow, don’t leave the wirehouse.”

TIPS FROM ALEX GOSS

• “Make sure to spend time educating advisers on what the real costs of independence are. It’s not a fit for everyone, and if you’re honest with them, the right advisers will go your way. If you’re not, you’re going to have unhappy advisers who leave you after a few years.”

• “Know the type of adviser that is the right fit for your firm. Just as you can’t be the right adviser for every client, know your niche with advisers and focus on finding them. We focus on advisers that are already successful, and give them more time and money to invest in what they’re already good at. I won’t promise an adviser that we will help them find clients; it’s just not what we do.”

• “If you’re going to recruit advisers, invest heavily in supporting that business. It requires highly experienced and expensive compliance, operations, and service individuals. It requires a lot of your time, too. If you’re thinking about recruiting advisers as a side gig to advising clients, it’s not going to work.”

• “If your goal is to be a firm that’s only value is to offer the highest payout, that’s not going to last long. Your operating costs are soon going to be larger than your revenues, and you’ll find yourself charging your advisers more, or going out of business.”

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