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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In part one of this two-part series, I explained the disadvantage of paying for real estate expense on a variable basis as part of your “payout.” A fixed expense approach provides far better economics for advisors.
In part two, I will provide several examples of how to reduce your real estate expense further, thus increasing your practice's profitability.
While some of the strategies were relevant pre-COVID, the pandemic has fundamentally changed how advisors, team members, and clients use office space.
The first strategy is to go virtual – no physical office at all.
While not for everyone, such an approach is no longer relegated solely to the fringes of the profession.
Many advisors have concluded that a physical office is unnecessary. Their employees want to work remotely; clients are comfortable with (and often prefer) Zoom, so why incur the expense of an office?
My own experience working with the CPA firm I use is telling. I met them in their office roughly seven years ago when I first engaged them for their services. I haven’t set foot in their office since and have no desire to. For seven years, they have provided a valuable service I am happy to pay for, and we have conducted everything via phone, Zoom, email, etc. It has been an immense time saver for me. They could close their physical office location and I wouldn’t know unless I happened to ask.
Consider if going fully virtual is something you could accommodate in your practice. The savings on office expense is sizable.
But Brad, you just said you initially met with the CPA team in person.
Correct, that was important to me. While I was connected to them via a trusted referral source, the importance of the service they provided made me want to meet initially in person.
This leads to the next strategy, which is a reduced office footprint.
Pre-COVID, the assumption was generally that every advisor on a team needed a full office, every supporting team member an office or workstation of their own, one if not two conference rooms were mandatory, etc.
Some of your team members now work remotely full-time or only come into the office a few days a week. You no longer need the same office footprint for team members.
For advisors, while there is vanity to each having your own designated office, at what capacity will they be used? Could you instead have fewer “floater” offices used by whichever advisors are physically in the office that day? Each would be equipped to accommodate a laptop-carrying advisor.
A reduced footprint might include a conference room, a few floater offices, and a reduced number of team-member workstations. For clients like me who desire to meet initially in person, such an arrangement accommodates that while reducing costs.
Finally, think creatively about how you approach your office needs.
I know of a wirehouse team considering breaking away. They are both members of a local high-end social club with a lavish club facility.
Most of their clients prefer meeting virtually or, if in-person, the atmosphere of the club facility is such that the clients prefer meeting at the social club instead of going into the advisor’s traditional office. Further, the club has meeting facilities that can be reserved when more privacy is desired.
This has the advisors pondering: if they breakaway and start their own independent firm, do they need a traditional office footprint? They can continue to meet clients virtually or in person utilizing the social club. No expensive office is needed.
The rules have changed in our COVID (and hopefully post-COVID) world. The previously “required” real estate of a successful advisory firm has been redefined.
For those already independent, do you still need your existing office footprint? Reimagine the space needed for your fellow advisors, team members, and clients.
Advisors considering breaking away have a blank slate to work from. Throw out the rulebook. Construct your office approach based on what is needed for you and your clients. Legacy traditions need not apply.
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.
Read more articles by Brad Wales
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.
