Advisers Need Growth Strategy Plan

That is the message of “Taking Control of Your Future: Scale, Value and Certainty,” a report from the Alliance for Registered Investment Advisors (aRIA). 

“We have a lot of great financial advisers in the RIA and independent channel, but there is less focus on business management than there should be,” John Furey, principal with Advisor Growth Strategies and a managing member of aRIA told PLANADVISER.

“Many advisers focus solely on being a great planner. When it comes to thinking about long-term succession and building scale, there is much less focus on that.” It is not sufficient for an adviser to focus on the “day to day,” ignoring the fact that they aren’t experiencing any “pain point,” Furey said, because the fact of the matter is, without a plan, an RIA firm will undoubtedly experience erosion caused by “new competitive forces.” Over the past few years, independent advisers were able to take market share from wirehouses, and that cycle is now over, Furey said.

As aRIA puts it, advisers need to “take control of their future” by creating “scale, value and certainty. Increasingly, the RIA channel is seeing dispersion where larger, more sophisticated entities are gaining share, while other advisory firms are stagnating. The key distinction is effective business planning and the ability to generate people, process and investment to take a firm to the next level.”

It is not enough for advisers to generate healthy profits that entitle them to what aRIA calls a status quo, or “lifestyle practice.” Advisers need to develop a long-term growth plan of 10 years or longer, aRIA said. They need to consider ways to grow organically by reinvesting capital to hire a chief operating officer and/or chief marketing officer—or perhaps partnering with or acquiring other advisory firms.

Admittedly, this is a difficult decision, which is why only about 10% of RIA firms have a “meaningful,” long-term growth strategy. “If you have $1 million in revenue and profits of $200,000 but need to invest $150,000 to grow your business, it’s a difficult and emotional choice,” Furey said. “Most advisers fail to do that and have a plateau effect. What they need to do is put a meaningful investment back into their business.

A strategic plan needs to include a blueprint for exiting the business when the lead adviser is ready to retire.. “Most deals take several years, and in many cases, the adviser has to stay on three to seven years after the deal closes,” Furey said. “We handled a succession plan for a $100 million firm in northern California, and they have a 15-year plan to transfer the business.”

The options advisers can take to grow their business, according to aRIA, include:

1.) Hiring the right talent.
2.) Hiring a business manager in addition to great advisers.
3.) Building scalable systems and processes.

As the aRIA report puts it: “Too many independent advisers may be stuck in the present and could put greater emphasis on taking control of the future. Advisers who fail to plan for the future or decide to do nothing are almost certain to realize eventual fee compression, erosion of margins, challenges in recruiting top talent, a below-market firm valuation, limited liquidity options and degradation of enterprise value.”