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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You provide a lot of value to your clients. Save them from making even a single catastrophic financial mistake and your fees will forever be a moot point.
I was reminded of this by a thread on Twitter, which I acknowledge is a source of information. I am lacking when it comes to tweeting, but I am an avid consumer of tweets.
If you sort through the noise of the platform (tip: mute people who add no value to the conversation), it is amazing who you can learn from – particularly from those in industries you might not otherwise cross paths with.
I stumbled upon an anonymous account of a guy who owns and operates commercial strip malls (“StripMallGuy” @RealEstateTrent.) Have I ever considered investing in a strip mall? No. But before you know it, my fascination with his tweets kept me digging down his rabbit hole of knowledge.
A topic he touched on was the impact a dry cleaner business can have on a commercial property.
Stay with me. I promise this gets interesting.
I’m not referring to a “drop off” dry cleaner where they accept your clothes and send them off to a third-party location for cleaning. I am referring to dry cleaning done on the premises.
There is a highly toxic chemical used in the dry-cleaning process called tetrachloroethylene (“PCE” or “perc”). It helps dissolve grease without causing damage to the fabric.
PCE’s toxicity wasn’t always fully understood. It’s now known to cause certain cancers and other nasty outcomes.
If a quantity of PCE, as little as a shot glass, gets spilled onto the strip mall property and into the soil, the cost of the environmental cleanup to the property will usually exceed the property’s entire value. Often, the building must be torn down to replace the soil underneath.
Here’s the real kicker. PCE never goes away on its own. A strip mall might not currently have an on-site dry cleaner, but if there was a dry cleaner on-site at any point in the past (even decades prior), there’s a good chance PCE was spilled. The property is worthless.
What does this have to do with you and your clients?
Imagine you were interested in investing in commercial property, perhaps a strip mall. You never heard of PCE, though. However, the commercial realtor you’ve engaged explains it to you and how to research if an on-site dry cleaner was ever on a property you are eyeing.
That single act of guidance could save you from making a catastrophic investment decision.
Any fees you might ever pay that realtor are worth it for that piece of advice alone.
Now consider the advice you give your clients. Some topics are more impactful than others.
Along the way, you will undoubtedly provide advice that can save them from their own catastrophic mistakes:
- Reminding them to update beneficiary information, removing a now ex-spouse from a large retirement account;
- Talking them out of investing in a “guaranteed” investment opportunity some shady character talked to them about;
- Saving an aging client from being victimized by an overseas scam asking them to wire money to a destination, never to be heard from again; or
- Helping a client sell investments or a business in a way that, if not done correctly, could result in millions in additional tax liabilities.
Articulate to your clients how part of your value proposition is saving them from these mistakes. Ensure your clients appreciate the equivalent role you provide as a commercial realtor explaining PCE to potential property investors.
I experience this scenario in my line of work. I help advisors understand why and how to transition their practice to the RIA model.
Advisors only make the transition a single time in their career. They naturally are not versed in how it works, the options available, etc. My job is not only to help advisors navigate it all but to make sure they don’t make catastrophic mistakes in the process.
That advice is priceless.
You provide similar value for your clients. They might not need to know the full backstory on tetrachloroethylene, but make sure they’re aware that you do!
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.
