RIA founders should invest early and stay nimble

As competition in the advisory business intensifies, the pressure to make ever larger investments in your firm’s infrastructure grows exponentially. Only firms that can provide state-of-the-art products and services will survive. How do you stay relevant with limited resources especially early in your firm’s life cycle?

I went through it myself in the early days of founding an RIA. In that period when I was hustling, prospecting, and seeking to establish a legitimate back office, large, forward-looking investments seemed insurmountable. However, I realized that our firm had to grow or die, and we wanted to grow.

Everybody says they want to grow, but many founders really fear growth.  Adding clients and adding employees means complications and aggravation.  Who will determine what technology and platforms we should use?  Who will hire all those people?  How much must we spend on our back office?  Then, the hesitant founder resorts to rationalizations: it’s too soon, we’re not ready, if only we hit this much AUM, or these many advisors, then we can consider infrastructure investments.

By then it will be too late. You’ll have grown with no infrastructure in place to support that growth, and your firm will enter a chaotic spiral of playing catch-up as the firm continues to grow.  Trade errors multiply, employees go untrained, clients are underserviced, lack of process leads to bottlenecks. Now, your investment becomes insurmountable.

Founders often respond that they will hire somebody or several somebody when the need arises. But that begs the questions, “who?” and “from where?”. Competition in our industry is increasingly ramping up to attract the best talent to firms. When you don't set this talent up for success early enough, you’re setting the entire firm up for failure. If you don’t have the proper infrastructure and resources in place, team members will start to leave and look for firms that do.

This creates an even bigger lift for the talent left at your firm, who then have to shoulder additional responsibilities, causing them to burn out faster. The bottleneck becomes increasingly clogged and difficult to clear. This impacts company culture and morale, and even the advisors that are partnered with you.

These challenges lead to two existential questions: What are we, and what do we want to be?  Are we an advisory firm? A BD office? A platform for other advisers?  Are we a lifestyle firm or do we want to grow?  Do we want to create equity for an exit someday? Do we want hybrid advisers, W-2, 1099?  Do we want to add products or focus only on advice?  These strategic questions and their answers are often mutually exclusive, but all of them require investments in a firm direction.

Understanding the long-term vision for your firm can make these initial investments seem less frivolous. When you’re working towards a goal, having the right pieces in place to reach this goal proactively is the way you put the stepping stones down for yourself.

The risk of investing in your business is making the wrong investment.  To avoid this pitfall, make certain that your investment furthers your long-term goals for the firm. 

That said, I should add a caveat, in the early stages of growth, you must be flexible. You can create a perfect plan: the perfect forecast for the next 5-10 years of growth, the perfect tech partner, the perfect staff. But if the advisor experience doesn’t align with your plan, you will hinder the growth of the firm. Creating a firm vision is about general direction, a true north.  You can always figure out the specifics later.

I experienced this early on. We had a set plan and started rolling out our resources, connecting advisors with our back office, but we received feedback that our advisors’ needs were different from the ones we anticipated.

We’d built flexibility into our plans and investments. We recalibrated and focused our future investments on serving our advisors and their needs, not the needs we expected on paper without the lived experience. This ability to remain nimble and make smart investments with flexibility baked in helped us make small changes that served our advisors in the ways they needed us.

Ultimately, we have become an RIA middle office, providing the technology and operations that frees advisor teams to go out and do what they do best: attract new business and serve their client’s financial needs while managing the back office functions around asset management, trading, and execution. This mission begins on day one. There can be no delays in supplying your firm with the proper staffing, tech, and back-office resources. Even when external market forces and volatility upend our industry, if your firm is armed with strong, nimble infrastructure and well-thought forecasting, it will weather any storm.

As RIA leaders, we’re here to shoulder that responsibility so our firm can grow and we can continue supporting advisors to go out there and serve their clients. When we put that trust in ourselves and in our vision, our advisors and our clients can, too.

James Spinelli is the founder of Great Valley Advisor Group.