RIAs that invest in training and development can win more and build their brands

As a fan of the Boston Red Sox (sorry, local NY/NJ Yankee and Mets fans!), I was quite impressed with their steady march to the World Series title this year. Impressed, but not surprised because, as Mr. Kennedy notes above, the Red Sox have been investing in “the product” for years, consistently fielding great talent and training it extensively, to assemble a championship team.

Talent acquisition has also been a major focus for advisory firms, according to the 2018 InvestmentNews Study of Pricing & Profitability. For this study, which was sponsored by BNY Mellon’s Pershing, a diverse constellation of nearly 400 firms contributed their data on income, staffing, compensation, strategy, marketing, services, fees and other business factors. Close to half (49%) of firms reported that they hired support advisers in 2017, which represented a major increase from the 14% that reported the same thing in 2016. In similar fashion, 20% of firms hired service advisers in 2017, compared with just 10% in 2016.

These bold investments in talent and firm capacity seem justified in light of 2017’s dramatic revenue growth. Firms in 2017 achieved median revenue growth of 11.7%, compared with 5.0% in 2016 and 6.9% in 2015. Yet, as I wrote in the first article of this series, there is more to this rising-revenue story. Specifically, AUM growth was driven mainly by 2017 financial market performance, which is a tailwind that (as we’ve witnessed all too many times) can lose energy at any moment. If markets fall in 2019, firms that have invested intensely in talent run the risk of taking a profitability hit.

But attracting talent (and the right amount of talent) is only the start. Returning to our Red Sox example, it’s important to distinguish how the team’s strong focus on developing players has also contributed to big wins, strengthening the franchise’s profitability and sustainability. By contrast, advisory firms are not necessarily getting the same level of productivity from their human investments.

Take a look at this chart (Figure 1) from the InvestmentNews study. It illustrates firm productivity over the years, expressed as revenue per employee. From 2016 to 2017, we saw an uptick in revenue per staff member and a drop in revenue per professional. But the bigger takeaway is how productivity over the past five years has been largely flat, which suggests that many firms – despite investing in capacity increases – haven’t yet found a formula for elevating performance across the board.

So, what is the formula for improving performance? One answer, in my view, is to make a real commitment to training and development. Consider for a moment the many support and service advisers hired in 2017 that I mentioned earlier. These hires comprise just a fraction of all new people joining advisory firms. Is everyone taking part in advanced training (beyond office basics) to help them perform their job functions optimally? Is the training formal and on topics including client interaction, new financial technologies and process improvement? Is the firm also encouraging people to pursue professional licensing and education?

It’s unlikely that many firms are investing in the advanced training that can build a championship team. The InvestmentNews study found that firms, on average, are devoting only 0.6% of revenue to the overhead expense category, which includes training, continuing education, professional dues and licensing.

One area of opportunity is in adviser sales training. Over the past three years, we’ve seen only 18% to 20% of firms have invested in adviser sales training as part of an overall growth strategy. In my view, this is critical. Too often, firms do not achieve business development goals because advisers lack clear metrics or specific skills.

It would be great to see training increase productivity over the coming years, but in today’s competitive environment, advisers must also learn how to engage and retain clients. The InvestmentNews study found that 34.6% of clients gained in 2017 were won over from competing RIAs or broker-dealers.

This is a far cry from 2015, when about 10% of new clients came from these sources. What this tells us is that advisers must educate clients about the value the firm provides, how its services compare with those of other firms, and what the firm stands for in the marketplace and in the community.

What we’re talking about is the firm’s “brand,” and no one can assume that advisers will tell a consistent story about it if they don’t fully understand the firm’s mission and how it adds value to the client. Here, too, investment in training is essential. In fact, in my experience, the firms with the greatest success in retaining clients and advisers are those with a strong sense of identity and mission.

For the Red Sox, investments in talent and training have completely remade their brand. Gone is the talk of the Babe Ruth Curse, with die-hard fans shouting “This is the year” (for 86 years) at every season’s opener. The Sox are a team that fans and players alike can truly be proud of.

I’ll be exploring other aspects of the InvestmentNews study involving marketing and sales strategies in an upcoming article, which will be the third in this series. I hope all of these study insights are helpful to the RIA firms that are continuing to reshape the financial services landscape with their intense client focus.

BNY Mellon’s Pershing Advisor Solutions provides a comprehensive array of practice management resources, programs and personalized support to help advisory firms manage and grow their business. You can engage with our consultants in multiple ways: receive guidance for implementing one of our programs, attend a Pershing event or practice management forum, or take part online through our webcasts. You can learn more at pershing.com.

About the Author

Gabriel Garcia is a Managing Director for BNY Mellon’s Pershing Advisor Solutions in the Relationship Management group. Mr. Garcia works with registered investment advisers (RIAs) interested in developing and growing their practices, helping them manage business issues they face. He engages advisers to help them make informed decisions around maximizing Pershing’s resources and evolving their firms to become more scalable, profitable and productive. Mr. Garcia spent his previous 15 years with Charles Schwab & Co., where he held several leadership positions in sales, training and consulting. His last six years were spent working directly with RIAs. Overall, Mr. Garcia has 20 years of experience in financial services and has consulted with more than 100 firms ranging in AUM from $50 million to $3 billion. He also is a frequent speaker at industry and national conferences. Mr. Garcia earned a Bachelor of Science degree in Finance and Business Administration from Radford University. When he’s not in the office, he enjoys CrossFit and spending time with his family at the Jersey Shore. You can follow him on LinkedIn at www.linkedin.com/in/gabrielgarciapas.

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