The number of advisors is shrinking even as the amount of assets under management is going to go up and up. That means a low bar for advisors, right?
Not so fast. The firms that want to win in the RIA space face a growing number of super firms that are gathering a disproportionate amount of assets. Those that want to grow must grow fast and that means they’ll have to have a number of business practices in place to succeed.
“The competition over the next five years are going to be these really well-run, well-scaled RIA businesses and how you differentiate yourself versus those firms is going to become more and more challenging,” said Shirl Penney, president and CEO of Dynasty Financial Partners, an RIA services firm. The RIA space “went from 10 years ago having maybe 150 RIAs that had a billion dollars to now approaching 700 firms that have a billion and they are getting bigger a lot faster,” he said. The biggest firms control a vast majority of the assets, and that’s accelerating, he added.
Penney gave a list of what he thought were the best practices for RIAs in this environment, offering 10 tips in a presentation at the Pershing Advisor Solutions' RIA Symposium in Midtown Manhattan on Tuesday. Penney, a veteran of Citigroup and Salomon Smith Barney, built Dynasty, a platform services company for RIAs, in 2010 as the economy was coming out of the despair of the financial crisis.
He said that RIA leaders must not only have grand vision for their firms but also be able to do things like give clients hard news about pricing to protect margins, and perhaps offload staffers who aren’t working out. They must avoid letting costs eat up their balance sheets and use technology whenever they can to ramp up business in innovative ways.
“At a time when we have more clients that need financial advice than ever and you see the investable assets, advisor-directed, going up … we have fewer and fewer advisors to deliver that advice,” he said. That means the advisors will need to use technology so that they can cover 200 clients tomorrow when they cover 100 today. That’s how they will win on a disproportionate basis, Penney said.
Here are the 10 tips he offered:
1. Advisors should take inventory of the four areas that will determine the success of their business over time. One is a plan: Do they have the right one? Also, do they have the right team? Do they have the capital? And do they have the time?
Advisors must align the “why” in their firms and “own” the culture, developing talent that is able to “buy in” to the firm. Owners must set the vision. They must also identify, develop and keep top talent, surrounding themselves with business partners and co-owners, not employees.