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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I am reminded of a group assignment from one of my undergraduate business classes.
Over 20 years removed, every detail of the project is not top of mind, but I recall the basics.
We were assigned to design a business plan for a fictional food product startup in a a South American country. Beef jerky was our product.
We were tasked with researching the country’s manufacturing channels, supply chain, marketing and sales strategies, grocery store distribution options, etc. We were to create a new food product to introduce, distribute and promote to the marketplace, all in a country none of us were familiar with.
To a bunch of undergraduate students, this seemed like a lot of work!
Then lightning stuck!
We decided our beef jerky would not be a traditional B2C consumer product. Instead, we would introduce the concept of a store-brand version of beef jerky. Instead of having to market to millions of potential customers directly, we would be a B2B provider for half a dozen or fewer grocery store chains.
This made the project significantly less complicated.
Creating and promoting a new brand in the marketplace... not applicable.
Building out a nationwide sales team to target thousands of potential distribution points... not applicable.
Figuring out how to deliver the product to disparate warehouses across the country... not applicable.
We eliminated 60%+ of the project via a simple “n/a.”
While reluctant at first, the professor acknowledged our ingenuity and allowed our pathway to proceed. But I suspect he updated the assignment’s instructions to close the loophole for future classes. For us, however, we found the easy button!
Now, consider your advisory practice.
Step back from the processes you have in place and how you solve for compliance, technology, custodial relationships, asset management, etc.
Imagine you’re the proverbial undergraduate tasked with creating a new advisory practice. As with the beef jerky project, tackle the assignment with no preconceived restraints of legacy approaches.
Is there an easy button you’re overlooking?
Going forward, we will increasingly hear the term “shared-service provider” as the answer.
I did not invent the phrase, nor is there a universal definition for it.
What it generally refers to are solution providers that let you outsource in a bundled approach, the non-value-add, commoditized parts of your advisory practice.
Your clients care about the problems you solve for them, the team you have built for them to interact with, and your brand and credibility.
They don’t care about how your CRM maintains its integration with your portfolio management system, how the quarterly fee billing is logistically communicated to the custodian, how your website is maintained and hosted, etc.
It is no different in the restaurant industry. You care about the taste and quality of the food, the atmosphere, and the staff delivering the experience. You don’t care how they create ice for the drinks, where they get their table napkins, etc.
Looking through the lens of a clean slate, what parts of your practice would you prefer to outsource to someone else? What are the commoditized table stakes of running your practice which are not viewed as value-adds by the client?
When was the last time you asked a restaurant how they get their table napkins? You don’t because you don’t care how they do it.
Shared-service providers will increasingly provide outsourcing for the advisory profession. You outsource the commoditized, non-value-add parts of running your practice so you can focus your energy on what clients directly care about, what differentiates your practice, and the parts of running your practice you are passionate about.
Existing solutions provide the outsourcing to maintain your own RIA, with other solutions enabling you to absolve yourself of the regulatory responsibility by tucking under their ADV as part of their value proposition.
Whichever flavor is chosen, the idea is to outsource the non-value-add pieces to a provider that has more scale, pricing power, and resources than you could achieve on your own.
Many RIAs will still manage each piece in-house themselves. An increasing number, though, of present and future RIAs, will turn to shared-service providers as their chosen path.
My former class project cohorts would agree.
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.
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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.
