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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A year ago, my dryer stopped drying clothes. Considering that is the reason a dryer exists, this was not welcomed.
Being many years old, I decided replacing it with a new unit was more cost-effective than trying to fix it.
After some research, I bought a unit costing roughly $2,000.
This dryer does it all. It connects to my WIFI, has a fancy steam dry setting involving running a water line to the unit, can communicate with the adjacent washer, and has a half dozen heat levels. You name it, it does it!
A short time after it was delivered, I was sharing the news of my proud acquisition with a friend. His reaction? “You’re an idiot!”
Wait, what?!
With a more eloquent tone than his initial feedback, he explained I would never use 80% of those fancy features. A dryer was for drying clothes, he explained. In almost every instance, you take your clothes out of the washer, throw them in the dryer, and press start for the normal dryer setting.
He noted I could have spent half the price and been just as satisfied with what I got out of the dryer.
Sure enough, a year later, I’ve never bothered figuring out the WIFI (or why that’s even needed). I’ve never hooked up the steam line. And except for occasionally turning the dial to “tumble dry low,” I never used any setting beyond “normal.”
I overpaid for features I was never going to use.
And please don’t remind me about the knobs and buttons in my car. I’ve never learned what many of them do either!
I share this analogy with advisors/teams launching an RIA. The lesson is equally relevant to existing RIAs looking to control costs and run a more efficient practice.
Consider the options:
- RIA technology vendors offer tools with dozens of different features.
- Custodians tout vast resources their RIA customers can tap.
- TAMP platforms offer hundreds of managers and models to choose from.
Perhaps your practice has unique circumstances where some of these bells and whistles are needed, just as there are inevitable users of the WIFI-triggered steam feature on a dryer.
But before you default to assuming the fanciest, feature-rich offering is best, ask yourself: How many of those bells and whistles are you going to use? How many tools are you and/or your team members realistically going to take the time to learn and implement into your practice?
Even if you arguably should implement such features, you should focus on a feature set that you’ll use and align what you pay.
Often, less is more.
I see this as well when advisors/teams are considering joining an RIA vs starting their own.
There are a wide range of RIA value propositions. Some RIAs tout a “full service” model where they provide a wide range of resources to support your practice. Other solutions provide a more limited “core” offering.
The price point for a full-service offering is naturally higher than that of a core offering. If you use a meaningful amount of the full-service resources, their pricing can be advantageous. If you only use a minority of their resources, a core offering will generally provide better value.
As you consider solution providers for your practice, whether during an initial transition to the RIA model or in pursuit of efficiencies within your existing practice, keep my friend in mind. He didn’t mince words regarding my dryer purchase. What would he think of the decisions you’ve made for your practice?
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.
