Most businesses that double or triple in revenues in less than a decade encounter growing pains and RIA firms are no different. As advisory firms have experienced blistering growth, their corporate structures are starting to resemble those of other big companies in financial services.
Many advisors are finding that the entrepreneurial talent and inspiration they relied upon to create their business differs dramatically from the skill set it will require to take the firm to the next level. The upshot is that more RIA firms increasingly are seeking out the organizational abilities of executives who have worked at other big financial companies.
Indeed, a 2015 poll by Fidelity Institutional found that 72% of executive respondents felt like there was already a talent shortage in the industry. It might be because there are now 400 RIA firms managing more than $1 billion in client assets. RIAs, wirehouses, custodians and giant global banks all seem to be competing for recruits from the same shrinking pool of executive talent.
That’s why executives at custodians and other big institutions have emerged as a source of that new RIA talent. And these recruits may like the RIA space because that’s where they perceive opportunities that global financial giants can’t offer. Why? Technology is getting cheaper and more nimble, and brokerages and custodians no longer enjoy the huge advantages in resources they once held.
Why are custodians and other financial companies good sources of talent? Because their executives service hundreds of firms and have a 30,000-foot view of best practices when it comes to growing an advisory business. Bringing someone in with expertise in practice management, marketing or technology can be instrumental in growing a firm.
“I’m surprised more executives don’t do it [join RIA firms],” says Russ Hill, CEO of Halbert Hargrove, a $3 billion RIA in Long Beach, Calif. “They have more flexibility to do what they want, create something and build equity.”
Relura Horton
One of the most recent executives to cross into the RIA business from a custodian is Relura Horton, who left a 12-year career at Fidelity Custody and Clearing Services to become president and COO of San Francisco-based Parallel Advisors.
Before her hire, Parallel and Horton weren’t exactly strangers. As Fidelity’s regional managing director for the West Coast, Horton maintained a working relationship with RIA clients like Parallel and its founder and CEO, Jerry “C.J.” Rendic.
Horton says it was the allure of the RIA industry, rather than any issues at Fidelity, that prompted the change of jobs. “There were many great reasons to stay,” she says. “My decision to join Parallel was based on a set of ‘pull’ dynamics towards Parallel, instead of a push away from Fidelity. It was a wonderful opportunity and culture, and it was hard to leave.”
Not only did Parallel have a San Francisco location, but the timing was good. “Joining an RIA and actually working in the space I served at Fidelity was a natural step,” she says. “It’s a great time to be providing financial advice; things are changing quickly and in a way where RIAs are in a good position. Parallel is in a position to capitalize on those changes, particularly the technological and demographic changes.”
Rendic says that Horton was brought on in part to help Parallel accomplish its aggressive seven-year growth target of $10 billion AUM. Currently, the firm has $1.3 billion in client assets and approximately 1,000 clients, but in recent years Parallel has also posted 40% to 50% annual growth rates.
In part, Parallel’s growth is going to come from expanding the demographic diversity of its clients, especially among women, says Horton. Her experience working in sales and relationship management with large and fast-growing RIAs could boost the firm’s inorganic growth as well.
“The challenge is to bring in and to support young advisors in this space,” Horton says. “I feel like Parallel is built to capitalize on that opportunity, especially in the area of expanding the industry’s demographics.”
Her experience shows that former custodian executives can provide a bird’s-eye view of the RIA industry, which has grown and evolved so quickly that it’s become difficult for practitioners to fully embrace. “I had the opportunity to get acquainted with fast-growing and successful RIA firms at Fidelity,” Horton says. “To me, what I see is that successful RIAs have a dynamic leader with a clear vision for the future, and at Parallel that has been C.J., especially in terms of building a business with the flexible technology that would allow it to scale.”
Rendic’s hiring practices have emphasized both diversity in the backgrounds of company executives and their large-firm experience. He’s surrounded himself with personnel recruited from firms like Barclays, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, UBS and Wells Fargo.
“One of the things we’ve been pushing is the build-out of a great leadership team,” Rendic says. “We’re looking for people with experience working with and leading within larger organizations.”
Parallel’s equity offering was part of the draw, says Horton. “Being part of an entrepreneurial firm is very rewarding, [and] Parallel’s equity offering was definitely a factor.”
Scott Dell’Orfano
Few people have seen the growth of the RIA business from as many different angles as Scott Dell’Orfano. In 2001, he left SEI for Fidelity, where he spent his last eight years as executive vice president in charge of sales and relationship for its custodial business. During his 11 years there, Fidelity tripled the number of RIAs it served while assets under management swelled from $100 billion to $600 billion.
Dell’Orfano believes the RIA business began turning from an emerging cottage industry into a more institutional business in 2005 and 2006 at the same time aggregators and consolidators such as Dynasty Financial Partners, Focus Financial, HighTower and United Capital appeared on the scene. As a top Fidelity executive, he had a front row seat at the table as these firms outlined their disparate strategies.
Looking for a new challenge in 2013, he joined Banyan Partners, a start-up acquirer founded by Peter Raimondi, a former principal of the Colony Group, a large Boston-based RIA that had sold a majority stake to Focus. “I knew Peter had plans to expand through acquisition, had capital behind him and the firm was growing organically,” Dell’Orfano says.
What Raimondi needed was institutional experience to scale the business, which was exactly what Dell’Orfano brought to the table. Banyan looked to establish itself as a national firm, but needed to ensure that if it opened an office in Los Angeles, the client experience there would be consistent with its Florida office.
In the next two years, Banyan would consummate four acquisitions and grow from $1 billion in assets under management to nearly $5 billion. The biggest transaction was Banyan’s acquisition of Silver Bridge, the wealth management arm of global law firm WilmerHale. The experience of rapid-fire acquisitions proved to be educational for Dell’Orfano.
“I thought the more difficult challenge would be integrating the systems and client experience,” he says. “The premium should have been placed on integrating cultures, even though the firms’ visions and ideals were the same.”
It’s harder to integrate cultures, coordinate vacation schedules and standardize compensation plans when people are in different locations. If he had to do it over again, he would have focused more on communication through all levels of the organization.
In 2015, Boston Private acquired Banyan for $60 million. Today, Dell’Orfano serves as chief operating officer of Boston Private, which now manages $7.5 billion.
What are the major differences between small and big firms’ cultures? The strength of most RIA firms is that they are “extremely customer-centric,” he says. “Most are in local markets and focused on over-servicing clients in the right way.”
In most entrepreneurial firms, success hinges on solid execution. “You feel it more in a small company,” Dell’Orfano says. “It’s exciting.”