A Q&A With an Adviser to Advisers

Art by Valeria Petrone

A little more than four years ago, Matt Matrisian sat down with PLANADVISER for a wide-ranging discussion about the topic of retirement plan advisory practice management following the publication of his book on the subject.

The conversation focused on the virtues of outsourcing, particularly in the area of portfolio management, as well as the importance of developing clear and provable value propositions structured around a goals-based financial planning approach.

In a new interview with PLANADVISER, Matrisian offers his thoughts about how the industry has evolved during the COVID-19 pandemic and where advisers’ practices are likely heading in the years ahead.

PLANADVISER: To begin with, please give us your temperature check on the retirement plan advisory and wealth management industries. How are advisers feeling about their business prospects in the current market environment?

Matrisian: Coming out of the pandemic, many advisers are looking at different ways to grow their organizations. They are, broadly speaking, very focused on business management issues, especially as we see the high pace of mergers and acquisitions persist. Even if firms are not aiming to sell, more of them want to have a better understanding of their potential valuations and multiples.

As a result of this trend, advisers are starting to take notice of the issue of maximizing the value of the asset that is their firm. What we are trying to do is help advisers put a true growth plan in place and help them think about business management in a productive way—thinking about profitability in the overall organization and the reduction of risks across the firm.

PLANADVISER: Is this thinking leading to significant practice management decisions?

Matrisian: In some cases, yes. One example is the interest in firms of building out their own registered investment adviser entity as a means to create more stable enterprise value.

Remember, there are still many advisers out there who are traditionally commission-focused. Maybe they still have a lot of trail income that has been built up by products sold in the past. This is good revenue, but how stable or reliable is it? The idea of moving toward the fee-based RIA business is to recast the value proposition to be more about long-term, structured financial planning that is not tied to a specific product set.

One means of accomplishing this is to build out your business under the corporate RIA of your broker/dealer. That’s one relatively easy way to take the planning-based approach, but if you think about long-term enterprise value for the adviser, the model is less attractive.  

If you put in the effort and resources to become an RIA owner, your clients are all “owned” by the RIA, so to speak. The individual advisers’ revenue in your firm will all roll up together, and you are able to make the firm more flexible and marketable.

This strategy makes more sense from a succession planning perspective as well, and you can begin to think about different revenue models beyond the traditional asset-based approach. You could embrace a subscription advisory fee model, for example, and bring in planning fees that complement the AUM fees.

If you look at some of the largest B/Ds out there, they have started to build out specific hybrid RIA offerings within their organizations. They understand this is an important trend and that, to keep their talent, this approach is necessary.

PLANADVISER: Can you summarize for us some of the most common challenges you hear about these days in your discussions with retirement plan advisers and wealth managers?

Matrisian: The top challenge we are hearing about from advisers in the field is finding talent. This has just been a bigger and bigger issue over time.

One thing we are working on and aiming to roll out soon is a service to help advisers build an active recruiting model based in their local universities. The goal is to help them cultivate next-generation talent.

We all know this industry has a highly visible problem. The average age of advisers is high, in the range of 56 or 57, depending on the estimate. This means trillions of dollars of advised assets are going to see the adviser retire over the next decade, and there must be sufficient talent in place to facilitate that transition.

If you go back 20 years, the way we got talent into this industry was to hire young people to the wire houses and tell them to sink or swim. If you look at the next generation that is coming in, they have more of an altruistic mindset. They want to go into an independent practice and work with an adviser they respect. They want to be advisers because they believe financial planning helps people in their daily lives in a meaningful way.

PLANADVISER: Is growth a challenge for the adviser community at large?

Matrisian: It’s interesting. It depends on the study you look at—for example, last year’s Fidelity RIA Benchmarking Study. In that analysis of adviser growth over the last three years, average assets under advisement went up 13%, while revenue growth was closer to 10%. That’s pretty strong.

What is more interesting is to look at the data more closely and see that 55% of new growth is coming from client referrals, while 20% is coming from third-party referrals made by traditional centers of influence such as accounting firms. The final 25% is coming from other forms of business development—things like traditional advertising, traditional lead gen, public webinars and such.

Our analyses show those advisers who are really focused on growth and who put a defined marketing strategy in place are far more successful at winning new clients, but this only describes about 40% of firms, in our assessment. Those who have a defined strategy grow at double the rate of the firms that don’t.

Something else to point out is that, on average, a given firm only spends 3.5% of their annual revenue on business development activities. I would like to see that figure be closer to 10%, frankly.

PLANADVISER: What constitutes a well-defined marketing and business development strategy?

Matrisian: You know, it’s not very complicated when you boil it down. If you are focused on growth, spend some money on it. We know that roughly seven out of 10 times that the adviser finally gets in front of new prospects, they will close that business. The strategy has to be about getting in front of new prospects.

So, digital lead generation is one key. To the extent that you can do this on an ongoing basis, you will see better growth. In addition, if 20% of your growth is coming from third-party referrals, you need to have a strategy in place there to cultivate and protect those relationships. You need to have a service model around these centers of influence. For example, ask that CFA firm what they need from you so that they can be more successful with their own clients. Do they need you to provide better visibility into tax-loss harvesting strategies you might be using? Do they want to collaborate with you on the question of reducing taxes of mutual clients? Are there other things you could be doing from an education perspective that you could use as a value add for their client base? It’s about building trust and credibility with these partners.

The Fidelity study I referenced before would tell you that only about 5% of clients actually make referrals. Given what we have said about growth and referrals, that is an incredibly important stat to understand.