In a "Practically Speaking" first, Harley Nager returns with his second guest post in just a month. While we typically space out our guest posts, I loved this article and thought it was timely following the RIA Summit.

Harley shares some feedback we have heard from RIAs about how their firms are evolving and what's important to them when it comes to technology. It isn’t a surprise that there are some disconnects in the language and the philosophies between advisors and manufacturers, but when it deals with the “hub” of your business, you better be clear. Most importantly, Harley shares some wise words from your peers, and that's something hard to find in this virtual world. Please enjoy this guest post by Harley Nager. 

Earlier this year, our team conducted interviews with a dozen registered investment advisor (RIA) firms across the country. These firms varied in size and approach, from a solo-practitioner with $50 million in assets under management (AUM), to a firm on the cusp of crossing over $1 billion, to a firm that had long ago surpassed $1 billion.

Our goal: To better understand what is most important to advisors, and how firms are evolving. The conversations were insightful, affirmational, and without fail, human and personal.

To further deepen my knowledge and perspective, I recently attended the “InvestmentNews” RIA Summit, which included panel discussions with some of the most popular providers and contributors in the RIA community. In fact, two of my colleagues, Steve Gardner and Erich Holland, were panelists at the event.

The summit was informative, well done, and thought provoking. But it left me wondering: “How did these insights align with what I heard in our RIA interviews?” So I went back to my notes.

How closely is the industry meeting RIA needs? How can advisors make the right solution choices to forge their future? I’ve summed up some of my observations.

The good news: Providers are listening to advisor needs

There is a lot of overlap between what RIAs are voicing and what providers are delivering. RIAs and their clients are asking for ease of use, enhanced client experience, and tools that provide more client value. Providers are focused and ready to provide solutions to address just about any problem an advisor may have.

At the same time, advisors and industry providers/vendors often speak a different language. In a game of buzzword bingo, provider speakers dominate. I heard the terms “operational efficiencies,” “at scale,” “leverage,” “value proposition,” and “revenue generating activities” more in one hour of industry speakers than I did in almost 20 hours of advisor interviews. (Special shout out to “at scale,” which is the clear favorite buzzword of the moment.)

Cutting through the jargon can make it difficult for advisors to figure out which solutions are best for them. Also, with so many good options and choice, advisors may face more complications and difficulty in fully committing to a decision (aka analysis paralysis). In fact, I heard many participants at the summit mention Michael Kitces’ “Financial AdvisorTech Solutions Map,” which is a compelling visual representation of the complexity of the growing advisor fintech space. That’s because for many of us, we end up stuck in the “paradox of choice,” where more can actually be less.

Sorting through the options: Narrow the field with the 5-year test

Our head of thought leadership, John Anderson, talks about “hubs” of the RIA business. Chuck Failla, principal of Sovereign Financial, an RIA who led a number of the sessions, described them as the “main food groups,” and another speaker used the term “primary tech ecosystem.”

They’re talking about the primary foundational component parts of any RIA firm: Custody, compliance/legal, planning software, CRM, and investment management solutions. Making solid decisions around selecting the correct partners in these areas is absolutely critical. 

During our RIA interviews earlier this year, we asked an advisor at the largest firm we interviewed how they vet new providers. The response: “I want to make sure they’re going to be around in five years. If I can’t get my arms around how viable a firm is long term, I certainly can’t consider them as a primary partner.”

I thought this was a solid takeaway when thinking about how to simplify the advisor fintech landscape. For example, if we look at all of the options available to advisors today, and then apply the “five-year test,” weeding out which providers have either a temporary ownership structure (i.e. private equity) or an ownership structure that is opaque, then the list is a lot smaller. 

Another key takeaway: Don’t tinker with parts of the primary ecosystem. If there is something shiny and new that you’re dying to incorporate into your business, have your fun within peripheral areas. Stability and safety should be primary drivers for selecting a new partner for the “hub” of your business. 

Planning for both now and later

It is clear that newer and smaller RIAs have different needs from more established ones. Up-and-comers often need more leverage than well established firms. It’s also clear that the emerging option for advisors is flexibility: solutions that can provide the support they need in the early stages of their firm’s life, and can then be customized and adjusted as they grow. 

The concept of open-architecture custody with a built-in operating platform appears to be gaining traction. It allows firms to choose how much leverage they want, now or later. Advisors can choose to plug into an entire value chain (e.g. custody, tech, and investments). Others, however, may only want a custody partner and opt to build an entirely bespoke firm. The key is that advisors have options.

I’ve seen this in practice first hand, and the idea of setting up your business now for both today and tomorrow is doable, attainable and a good way to help avoid disruption in the future. In particular, this option appears viable for smaller firms and those established firms looking for a more turnkey experience.

Regardless of the direction you take, pick a business model that allows you to "dimmer switch" the amount of support you need from partners, not one that forces you to decide “on or off.” The key (buzz)words are “flexible” and “customizable” (two points for anyone still playing bingo with me).

It’s no coincidence that the most successful firms also have the highest degree of owner and employee gratification.

When vision is clear, decisions are easy

Regardless of your firm size or future goals, having a clear vision is immensely important. It’s no coincidence that the most successful firms also have the highest degree of owner and employee gratification. A clear vision breeds happiness. In the meantime, here are some things to think about:

  • Five-year test – Will the firm you’re evaluating be around in five years? Do they have a temporary ownership structure? How transparent are their financials?
  • Freedom and choice – RIAs value freedom and choice above all else. Will this new relationship enable or hinder your feeling of freedom or choices for your clients?
  • Can the provider evolve with me? – The needs of your business and clients will change over time. Can you choose how much leverage you want?
  • Hot dot or not? – If you see something really interesting that you want to experiment with in your practice, go for it — but don’t take chances on your primary partnerships, which should be time- tested, stable, and well capitalized.


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