Fancy new technologies and practice management consulting services have always been part of the spiel custodians and broker-dealers have used to recruit fee-based registered investment advisors.

What's different these days, however, is that RIAs seem to be listening.

"We've been trying to talk to advisors for a long time to think about efficiency and scaling," says Neesha Hathi, vice president of technology solutions for Charles Schwab Advisor Services. "When business comes in hand over fist, it's hard to sit back and focus on those things."

The Great Recession has given many advisors a harsh lesson in what it really means to run a business, which means they can no longer afford to focus solely on investment management and leave business operations as an afterthought. They're now looking for as much help as they can get-particularly from their clearing and custodial partners.

They want, for example, advice on how they can trim costs and streamline operations while they expand services for an increasingly demanding and discriminating clientele, industry observers say. They not only want to hear about the technology platforms that custodians and broker-dealers have to offer, they want to hear about the bells and whistles, too.

Advisors, in essence, want from custodians and broker-dealers the same things that clients are asking from the advisors: reliable service, transparent reporting and quality advice-all at a reasonable price. "What they really want is the value of their firm to be greater because they are affiliated with you," says Matt Lynch, president and CEO of Capital Analysts Inc. (CAI), an independent broker-dealer in Cincinnati, Ohio, that derives 65% of its revenues from fees.

The lack of focused business management in the fee-based advisory has been pervasive, says Mark Tibergien, CEO of Pershing Advisor Solutions. Pershing is currently finishing up a study that shows that just a small number of advisors were able to successfully navigate the last two years of economic and financial turmoil.

"During the five years leading up to the cataclysm, they were able to get a lift from the market, which camouflaged inefficiencies in how they managed," Tibergien says.

That's why, he says, there's been a noticeable increase in the number of advisors both looking to hire general managers and chief operating officers and pursuing mergers. Advisors who don't have the resources for these kinds of solutions are leaning on their custodians for help, he notes.

"There is no doubt about it-every single advisory firm suffered somehow over the last couple of years," Tibergien says. "The degree depended on how they were managed professionally."

The Rise Of Technology
The fee-based technology offerings of custodians and broker-dealers have in some ways become commoditized. Chip Roame, managing principal of Tiburon Strategic Advisors, notes that custodians are quick to copy one another when it comes to new technologies. Many independent broker-dealers, he adds, rely on technologies provided by Envestnet.

But when you get past basic portfolio and client relationship management tools, things start to change. Observers note that technology is increasing in importance among fee-based advisors, particularly when it comes to streamlining business operations and implementing services for clients. That means technology could become an even more important differentiator in the fee-based services industry.

"There are other components to technology, including contact management software, financial planning technology and rebalancing software," Roame says. "Some firms include these items and/or have better technology than others."

The tricky part about improving a business operation with technology is making sure that the technology is incorporated into the firm's activities after it is installed, Hathi says. That's where good consulting from a custodian or broker-dealer comes into play, she says.

As an example, she says, an RIA with $500 million or more in assets under management could easily spend hundreds of thousands of dollars a year for a portfolio management platform and up to another $30,000 to $40,000 per year for client relationship management software. With that as a foundation, the firm could spend thousands more per year for things such as a rebalancing software package.

Yet that capital investment doesn't provide the proper payoff unless the office uses it properly, she says. That means the firm should be able to bring on another 30 accounts without having to hire additional staff. Or the person who spent three weeks at the end of each quarter doing performance reporting can now do the same job in three days.

Not all are successful at pulling this off. Hathi worked with one advisor that had six different software applications in the office, but was only taking advantage of a fraction of the functionality the technology had to offer.

It was situations like these that led Schwab to recently start a program called Intelligent Integration, which is designed to help advisors get all the different technologies in their operations to "talk" to each other.
"It requires discipline in how you embed technology and measure the success. That is the tricky part," she says.
Pershing released its new technology platform, NetX360, partly because of the key role it expects technology to play as fee-based advisors focus on enhancing their business operations, Tibergien says.

One issue advisors will be facing over the next several years is securing the capital investments that are sometimes necessary to take full advantage of technology, he says.

"The capital is a bit of an issue in some cases, particularly because a large number of advisors don't maintain a balance sheet," he says. "They really have not created a funding mechanism for their business."

Providing A Road Map
In addition to tools, advisors are looking toward their custodians and broker-dealers for business know-how. At TD Ameritrade, for example, consultants have provided 2,000 fee-based advisors with business "road maps" over the past year. The top two things advisors were looking for in those consultations were how to grow their businesses and how to make them more efficient, says Tom Bradley, president of TD Ameritrade's institutional division.

When times were good, advisors weren't necessarily open to such advice, let alone going out to look for it, Bradley notes. But declining revenues and profit margins have caused many advisors to reconsider their business practices, he says.

"They're much more open now to advice on how to run efficient back offices," Bradley says. For example, he says, advisors are much more interested in the efficiencies to be gained through systematic portfolio rebalancing.

Lynch of Capital Analyst says advisors also want to have efficient back office operations so they can be nimble, with the ability to add services and better serve clients. "I think generally what they are looking to do is have the ability to be able to respond to a changing set of expectations among the affluent client base," he says.

Advisors are also looking for help because the low-growth environment essentially means RIAs can't ride a market wave to business success. They, like most everyone else, have to invest some sweat equity into what they do, Lynch says.

"I think clients are paying more attention to what they are getting and what they are paying," he says. "When the market is humming along it doesn't take much to get great returns. Only when it becomes more elusive to create those types of returns does the value of advice become clearer."

That could include providing consulting in areas including investment management, estate planning and, more recently, lifestyle planning, he says. It's also led to advisors, like their clients, being more discriminating about fees and transparency in reporting. That's one of the reasons Capital Analyst charges advisors an annual flat fee for its services-starting at $120,000 for firms with up to three advisors and $150 million or more in assets under management. For that fee, the broker-dealer includes an array of practice management consulting services, including advice on succession planning.

"The reason the fee business started to grow is clients like it-they can really understand a fee," Lynch says. "What we've done is created the same model with the advisors."