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.

3. Have tough conversations, said Penney. That means tough conversations with clients on what you charge them and why, and honest talk with employees who are in the wrong roles. When Dynasty does pricing exercises with its clients, Penney said, the firm often finds that RIAs are giving discounts to their top clients. That’s bad for margins when, meanwhile, the cost of servicing accounts is going up. And when it comes to employees, the biggest challenge Dynasty sees with margins is over-hiring, Penney says.

4. An advisor should work on the business, not just in the business. That means advisors must work on their own professional development and get mentoring outside their industry. “Are we thinking about succession and using it as a way to get fresh ideas into the business?” That means firms should not only be getting better but getting better at getting better, Penney said.

5. Firms should be getting their business ready for both organic and inorganic growth. “Two-thirds of the firms that we serve say they want to grow inorganically,” Penney said. “The reality is most of us oftentimes are not ready for that growth. …  If all of a sudden your organic growth picked up to 20 percent to 25 percent, could you deal with it? … Do you have the onboarding capability set? Do you have the right servicing infrastructure? The right incentives in place? On the inorganic growth, do I have the right operating documents in place? Have I thought through the equity component? Do I have compensation plans in place for these advisors? Do I have the right cultural assessment and criteria?” A lot of firms talk about how they want to drive inorganic growth but don’t have a plan, he said.

6. Firms have to “establish their brand DNA,” creating a consistent client experience and using digital marketing. “When you think about the economic model, what’s your brand architecture? Where is your brand now and where do you want it to be in five years? Then dissect it into years. What should happen in year one, two, three, four and five? If you want to be the premier wealth management brand in Maine, what are the steps you need to do to get there?” He says that a firm can bubble up to the front page of Google after starting a firm in a new city by writing a very simple search optimization code. “If you’re not thinking about those types of things for your business, you should, because your best competitors are.”

7. Firms have to tech-enable all aspects of their business, using technology for things like compliance (programs that will raise red flags), operations, investments, finance, marketing and client engagement. But firms often don’t use the full capacity of the technology suites they use, since very often they come from a box, said Penney. Firms also have trouble integrating and customizing their technology.  

8. Firms have to “enhance their digital client experience,” Penney said. Within the next two years, he said, if advisors’ services aren’t on the phone, they run the risk of losing clients to other firms.

9. Firms must have access to best-in-class solutions for all their clients needs. Open architecture has allowed more access to product as the advisory and product manufacturing are separated and technology ties it together. That means there are more opportunities in the RIA space for things that used to be available only to the very wealthy. He mentions things like syndicated loans that are now available to RIA clients.<

10. Firms need to “insource the special sauce and outsource the rest.” In other words, they must stick to what they do best and if they don’t do something well, they must assign that task to outside firms.

One campaign Dynasty put together using digital marketing, he said, involved a West Coast firm Dynasty works with. “We wrote some simple white papers, very short and easy on ISOs, stock options, for Snapchat employees. Then with LinkedIn it’s very easy to use—you can target a campaign toward employees of any company. So we just pushed it out, targeting the campaign toward [Snap Inc.] executives. The strategy was very simple. To position this group of advisors as experts in stock option cash flow analysis, diversification, etc., running a concentrated position, in this case for Snap. And then we had a very simplistic AI tool that interacts with the client.” Once the advisor sets it up, he or she doesn’t have to touch it. When the prospects respond, the tool sends them a follow-up article to help them get more educated on their stock options. And then ultimately they can, off the system, book a meeting with the advisor.

“In the last campaign that we ran, [we got] 16,000 impressions. Nine hundred times the employees clicked through. It automatically, through the system, set up 15 meetings. Of the 15 meetings, the advisors closed seven of them. It was $21 million in new assets. Let me show you how much that campaign cost: $600.”

“These tools are out there,” he added.

Among Dynasty’s service offerings are a consulting business helping advisors launching a firm, a capital business loaning to RIAs to acquire other firms, an investment platform and an outsourcing business in which it runs the middle and back office for RIAs.