This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
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Comparing advisors to big-rig truck drivers makes more sense than you think, once you consider the eerie similarities in their business models.
Watch a YouTube video on a topic, and to no surprise, it will suggest related videos.
It is interesting to try to interpret why the algorithm suggests topics unrelated to anything you’ve ever searched for before.
Of late, YouTube is convinced I want to become a truck driver. Worst yet, I’ve clicked on some of those videos, and now YouTube is certain of it!
My curiosity about this secret desire in my life led me to a parallel in our industry.
As with advisors, truck drivers have various affiliation options. They can be owner-operators, lease-owners, employee drivers, etc. Each approach has its own pros/cons.
Some companies are outsourcers for truck drivers.
To own and operate your own truck, you have the responsibilities of running such a business. You must, among other things:
- Maintain insurance for the truck.
- Maintain insurance for the trailer.
- Maintain insurance for the cargo.
- Maintain licenses and permits for every state you intend to drive in.
- Implement a drug-testing program.
- Bill your clients and manage your accounts receivables.
- Submit required regulatory filings.
- Manage maintenance logs.
None of those tasks have anything to do with driving the truck. They are administrative tasks that 1) are non-revenue producing, 2) are commoditized, and not where the driver can add value, 3) are not what attracted the driver to the profession in the first place.
There are support companies that provide value by bundling those services into a single offering that the driver/owner can use in an outsourced fashion. Further, these companies use their scale to provide the driver/owners with access to lower fuel costs, insurance costs, etc.
Similar outsourcing partners exist in the RIA space as well.
Do you enjoy or feel you add value in how you process your client fee billings, maintain your tech stack, update your ADV, process your license renewals, etc.? Or are those commoditized, albeit necessary, tasks that you’d rather not spend time on yourself?
Further, might a “bundler” of such solutions have more scale than you have and be able to deliver such services more efficiently and for a lower cost?
Just as truck drivers don’t get into their profession out of a passion for maintaining state permitting logs, financial advisors are not drawn to the profession because they desire to complete commoditized administrative tasks.
The RIA ecosystem has evolved to where there are a variety of providers to which you can outsource such tasks.
For advisors not already in the RIA model, transitioning to it can be summed up by: “What does your current firm provide for you now, and how will you replicate it?”
Of the resources that need to be replicated, do you want to source and maintain them yourself, or would you rather outsource to a bundled solution provider to do on your behalf?
A common misconception of the RIA model is that the additional responsibilities are a burden on advisors. That argument falls apart due to the availability of these outsourcing partners.
The range of solutions is vast.
Some providers seek to solely replicate the core commoditized pieces of running a practice and have a competitive price. Other providers include the core pieces and a wide range of wealth management resources, including customized asset management, trust services, estate planning services, etc.
As an advisor, you can build out these necessary solutions on your own or focus your due diligence on the available outsourcing firms instead.
If you are at a traditional employee broker/dealer firm, you are already outsourcing these tasks. Your firm provides you with a bundled solution of compliance, fee filling, technology, license renewals, etc. You pay for these services as part of your payout.
Are you getting enough value from your current “outsourcing provider” to justify the fee it charges you? How does the value proposition of its bundled solution compare to the available options and costs if you used an outsourcing partner in the RIA space?
If you do not know the answer, it is impossible to understand if you are getting a good value.
Regardless of what YouTube thinks, I still have no interest in becoming a truck driver. But I applaud how the trucking industry has evolved to support the needs of its drivers. Advisors can benefit from the similar evolution of our profession.
Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.
This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
