Bob Veres' vision: Scalable, multi-partner RIA firms will be profitable and powerful enough to beat the wirehouses
Microbusinesses dominate the industry -- for now. That may change as the industry evolves along the lines of the legal profession.
Elizabeth’s note: Mark Hurley provoked some RIABiz readers with a negative assessment of the worth of most RIA practices. See What to make of Mark Hurley’s latest prophesy that most RIA firms will go out with a whimper. In this column, another of the industry’s broad thinkers, Bob Veres, offers a different vision for the future of our fast-evolving industry. Scalable RIA firms are not only possible, he argues — they are already multiplying and growing more profitable.
When outsiders look at the RIA world, they often have trouble believing how fragmented and small these businesses typically are. We live in a micro-business industry.
Consider some remarkable facts. Of the estimated 29,000 independent RIA firms listed in the Investment Advisor Search database, 13,500 are state-registered, meaning they have less than $25 million under management. Roughly 47% of the competitor firms in the RIA space probably generate less than $250,000 in revenues.
Of the remaining 15,500 firms, it has been estimated that 40% will move to state registration, meaning 6,200 firms have less than $100 million under management, and plausibly have less than $1 million in total revenues. Meanwhile, approximately 70 umbrella RIAs run by independent broker-dealers are each composed of between 500 and 1,000 smaller advisory firms whose principals function as IARs.
Add it all up, and you find that at least 95% of all firms that provide investment advice as their primary stock-in-trade would qualify under the Small Business Administration’s definition of “small” businesses ($7 million in annual revenues), and well over half fall within the World Bank and International Finance Corp.'s definition of “microbusinesses”—a category that more commonly includes companies whose sole employee is a woman in Bangladesh working at home with her newly financed sewing machine.
Viewed in this way, the RIA universe is all the more remarkable for its accomplishments in recent years. The Cerulli organization recently announced that sometime in 2012, the independent “channel” will have as many consumer assets under management as, in aggregate, the U.S.-based brokerage firms: UBS, Merrill Lynch et al. The growth rate of independent RIAs exceeds brokerage firms, national and regional banks and the entire insurance industry.
In my recently completed white paper (The Future of the Financial Advisory Business: Opportunities, Challenges and Trends in the Second Decade of the 21st Century, available for free at www.bobveres.com), I pose an interesting question.
What would happen if the independent RIA firms do what every other service industry (notably the legal and accounting professions) have done: amalgamate smaller firms into regional multi-partner entities with their own dedicated marketing teams (and budgets). The firms would have a significant presence in the local business community, plus the increased scale and access to resources that come with the size of a normal business entity. Is it possible that those firms would become more effective competitors in the marketplace at large?
This is not a hypothetical question; in fact, the trend is already well under way, pushed along by a powerful group of drivers. Among them: the aging of the baby boomer founders of most advisory firms (average age: 55-57). Those founders now are considering transition strategies—including mergers with other advisory firms.
How smaller firms are able to compete
In addition, the market downturn and the Great Recession created a new awareness of the importance of scale and management expertise. Meanwhile, the democratization of inexpensive practice management advice, offered by online service providers like Quantuvis and ActiFi, a growing ecology of outsource and support organizations, and new methods for incorporating professional software into advisory firms (sometimes gaining the principals a 1,000% return on their investment or more) are all making it possible for smaller advisory firms to compete.
The report examines each of these drivers in considerable detail. But the bigger picture question remains: What would the world look like if the RIA community undergoes a phase transition from practices to businesses large enough not to qualify for global microlending programs? The white paper suggests that we are looking at several interesting changes in the RIA space:
More profitability and take-home profits for company owners. The Moss Adams 2009 report on company profitability found that “mature solo” practices (which typically have of one professional and 150 active clients) typically generate a little under $207,000 a year in pretax income per owner. Owners of firms characterized in the study as “market dominators” (which have, typically, 13 professionals and 742 active clients) took home an average of $454,000.
A broader spectrum of RIA firm sizes. Some observers expect the advisory profession to evolve as the legal profession has. Some 48% of practicing attorneys work in solo practices, but 356 firms have more than 100 attorneys, and another 381 employ between 51 and 100 lawyers. Two firms each have more than 3,500 attorneys nationwide, working out of more than 65 offices.
Orders of magnitude more operational efficiency. Larger advisory firms will be able to specialize in one or more specific client niches, allowing them to customize their services and provide those services more efficiently. Advisors will be able to educate themselves more in the operational business challenges of their doctor, small business, or corporate executive clients. In addition, advisors will be able to cultivate more efficient, targeted marketing and referral programs.
A new competitive equation. The white paper boldly predicts the demise of the brokerage retail business model, but one doesn’t have to go that far to envision a very different world from the one we practice in today. As an understanding of the fiduciary standard becomes more prevalent in the regulatory world and in the press, and especially if mandatory arbitration clauses are ended, brokerage firms will increasingly have to defend their conflicts of interest—trading for their own account and recommending that their customers buy what they no longer want to own; recommending AND managing mutual funds; taking companies public AND recommending that their customers buy these new shares, etc.—in a public forum, and in court. The prediction is that these conflicts will carry increasing liability, which means that more firms will try to scale back their brokers’ RIA activities. That, in turn, will cause the best brokers to look for greener pastures—those increasingly scalable, multi-partner firms that are evolving in the RIA space.
Meanwhile, local marketing efforts by larger RIA firms would create more competition for firms who have, in the past, had exclusive access to the advertising media.
A few more points. The white paper also predicts that advisory firms will increasingly find ways to work with less-wealthy (middle market) clients at a profit. It foresees the emergence of a New Investment Paradigm (and more sophisticated investment management activities) and predicts professionals will offer new services like career counseling and budgeting/expense control advice. Larger firms will be able to bring more services in-house and create mutually beneficial alliances with a wider range of service providers.
The point here is that the RIA world has entered one of those periodic phases of rapid evolution, which will create a very different-looking world than the one we inhabit today. Some advisors will see these trends clearly, and navigate through them with such effectiveness that they increase market share. Others, as always, will be blindsided by the trends, respond slowly and grudgingly, and risk falling into irrelevance.
And, as always, the trends won’t care who participates in them; they’ll change our world in ways that were, in hindsight, remarkably predictable. For independent RIAs and their firms, the white paper paints a very bright future, achieved, in part, at the expense of brokerage firms, but more importantly, achieved by increasing size, scale, managerial excellence, better external support and internal utilization of software, more focused services and better models for serving a larger percentage of the population. All of these are logical developments; as we watch them unfold, we are likely to ask ourselves: why didn’t we begin this evolutionary journey years ago?
Bob Veres has been a commentator, author, speaker and consultant in the financial services industry for more than twenty years. He authored The Cutting Edge in Financial Services (Bloomberg Press, Jan. 2003), and has presented at many of the financial planning industry’s largest professional conferences. Mr. Veres is also editor and publisher of Inside Information, an interactive subscription-based information service for financial planning professionals. Download his controversial white paper at www.BobVeres.com.
Scale is the Holy Grail – cheezy but true statement. The question is where do you achieve scale? I believe it is on the operational side of the business and not on the advisory side. Large RIAs will run into the same problems as large law firms and accounting firms. The “rainmakers” are not scalable and therefore are undercompensated and will leave to start their own firms.
Can’t wait to read your White Paper! Great and thought provocative article.
On behalf of an adviser with several billion under advisement generating over $5 million in recurring fee revenue, I conducted an exhausted industry survey including all major firms, all custodians and the their largest RIA clients, all advice products and am sorry to say I found not one firm which is presently close to supporting the fiduciary standing of an advisor based on objective, non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters. I would be glad to provide a copy of the 50 page RFP that goes into some depth of what is required by statute and what is deemed best practices by the industry’s top advisers and technical experts. The benefits of large scale institutionalized support for fiduciary standing are extraordinary to include a level of counsel beyond the human ability to process. We are at the point where medicine was in the 1950’s, no electronic diagnostics or treatment. The advisory services industry is about to go through a rennaissance stimulated by regulatory reform. I am literally writing a white paper as we speak for Financial Research Corporation that explains what is about to occur.
The industry faces many challenges, many of which have been resolved in part but not in the form of a safe and easy to use comprehensive solution required for continuous comprehensive counsel necessary for fiduciary standing. Some of the challenges are:
> Treating trade execution as a cost center rather than a profit center in retail accounts to include omnibus block trades, electronic crossing networks and order flow compensation at the retail level resulting in a negative trading cost environment.
> Achieving transparency in investment cost and compensation requiring cost structure and compensation diagnostics.
> Finding an safe, easy, cost effective way to evaluate non-financial assets, trust and estate planning documents, vendor services in an asset/liability study.
> The creation of the electronic gating technology for all the financial values cited in investment policy going beyond risk, return, tax efficiency, liquidity, cost structure, time and client directives. When you get beyond 64 gates it becomes very complex.
> Real time portfolio management diagnostic tools/attribution analysis and a Victor Sperandeo like hedge fund strategy to manage volitility of financial, commodity and futures assets consistently resulting in alpha over time.
> A fully documented audited prudent investment process with expert opinion letters assuring fiduciary standing for each of the ten major market segments advisers serve.
> Work flow management for a functional division of labor for the adviser, CAO and CIO functions which facilitates an extraordinary level of continuous comprehensive counsel in an easy to manage form with out overwhelming the adviser.
> Reconciling transactions, with planning, with consulting, with fiduciary standing.
> etc, etc, etc.
There are solutions for all of the above, just not yet in an easy to use form. As they say the devil is in the details. It is incumbent upon the industry to resolve these issues and make an extremely high level of investment and administrative counsel in compliance with fiduciary standing easily and routinely executable.
There is a collaborative effort underway to make advice safe and easy to execute which I would love for you to join.
Advisers can build it themselves as they are today but that requires a high degree of technical expertise and proficiency in a broad range of topics which are often outside the practical experience of most advisors. If they can master all the moving parts they are fine. But I would suggest there is an element of scale that entails much needed innovation beyond what presently exists in the market place which will far eclipse todays functionality that will be fully integrated, easy to use and is faster, better and cheaper than anything in the market today. Certainly a viable advisory services firm is possible today—Spencer Segal of Actifi is as good as it gets in helping advisers optimize their practice based on their interests. The point I am making is no one has yet benefited from a corporate approach to advisory services which takes scale and advisory services support expertise to its fullest. In doing so, we preempt the brokerage value proposition, achieve enviable profit margins akin to money managers, three times the multible of a brokerage firm and likely six times the value an individual practice can command, if any, if it is not part of a larger, adviser owned organizatiion. So, I am talking about scale in the broadest context, expertly managed, beyond the capabilities of the individual practitioner.
There is so much innovation to be harnessed, it can get away from the ability and means of the individual practitioner. This requires continuous focus and professional management just like the adviser continually and comprehensively addresses the advisory services needs of their clients. Today we require the individual adviser to be highly adept in technical areas far afield from winning and managing client relationships in the clients best interest. Advisory services technology is like medical technology. Why require a doctor to build a heart and lung machine before they can practice medicine? And then there is the bigger question of putting all the technology together in a safe and easy to use formate that consistently provides an extraordinary level of continuous comprehensive counsel required for fiduciary standing (entailing real time holdings data) which is technologically difficult for the individual adviser to crack. There is the question of managing trade execution as a cost center rather than a profit center, a unifing prudent process for each of the ten major market segments served, a functional division of labor and work flow management, etc, etc. A very long list.
For the first time, we are close to large scale institutionalized support for fiduciary standing that provides a level of counsel beyond the human capacity to reason—just like medical diagnostics. The question is can the industry embrace modernity in the best interests of the consumer. This is why a fiduciary standard based on objective, non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters is so important. It unifies the industry and pushes us to execute advice in its fullest. There is a level of counsel that will take us far beyond where the industry is today that requires professional management beyond that of the individual practitioner. I think you would agree.
Ron A. Rhoades
Great article by Bob, and good comments by Jeff and Stephen. Some additional thoughts on this subject, some of which are undoubtedly derived from my reading of Bob’s excellent INSIDE INFORMATION newsletter over the years (the most worthy subscription of all the newsletters, journals I subscribe to).
1. ECONOMIES OF SCALE: THE COMPLIANCE CONUNDRUM. Compliance oversight actually adds costs, when going from a one-person shop to a 2-person or 3-person shop. Compliance costs then start falling, on a per-advisor basis, when many multiple advisors are in place, provided good procedures and centralized investment decision-making (i.e., Investment Committee approved investments) occur.
2. CROSS-MARKETING? Many law firms exist in order to cross-market services from one area of law to the other. Yet, the more successful RIA models usually serve only one or two niche markets, knowing that expansion into other areas involves different service models, thereby adding complexity in terms of establishing and maintaining processes for the firm (i.e., potentially higher costs).
3. RAIN-MAKERS: DO THEY NEED A TEAM IN THE RIA MODEL. Unlike many mid-sized law firms, where a rainmaker exists and other attorneys are brought in to provide the “manpower,” it is possible for the RIA rainmaker today to outsource her or his entire back office, and concentrate mostly on client relationships.
4. SIZE = TRUST + MARKETING STRENGTH. Perhaps one very good argument for the larger RIA firms to come into existence (and for current ones to grow) is that, in the eyes of the client, “size matters.” As long as securities regulators don’t do enough examinations (and hence don’t fulfill their “verification of assets” function), and Ponzi and other schemes abound, many clients (especially higher net worth clients) will be attracted to larger RIA firms (regardless of whether they are in fact “safer”). Additionally, as Bob suggests, very large RIA firms can engage in regional and perhaps national marketing campaigns, to build brand identity and build trust.
5. NO PROPRIETARY PRODUCTS; NO PRODUCT SALES. Firms that sell insurance products, or sell proprietary mutual funds or private equity funds, or enage in anything other than a fee-only business model, will open themselves up to “conflict of interest” attacks. One reason the RIA market has grown so successfully is the attractiveness of clients to the “reduced conflicts of interest” marketing line. There is still a long way to go, in terms of consumer awareness, and current and future regulatory actions may continue to “blur the line,” but it is likely that increased consumer awareness will occur – resulting in many more searching for a true fiduciary.
6. THE CHALLENGE OF NON-SOLICITATION, NON-COMPETE AGREEMENTS. With every year, another state’s court reduces the enforceability of such agreements. It will be difficult to hold together a big firm, especially one consisting of persons who are “rainmakers” and “entrepreneurs” and who are aware that back office functions can be outsourced in “my own RIA”. Large RIA firms will need the proper ownership and compensation structures in place to retain their top talent – and quickly after a new advisor’s ability are demonstrated.
7. PARTNERSHIP MODEL – ABSOLUTELY. Look for the old Goldman Sachs (pre-public offering) partnership model to be utilized (but using an LLC legal form). Advancement to “junior partner” and then “senior partner” occurs quickly for those advisors who are both successful rainmakers and good advisors. Compensation arrangements in such firms, including equity ownership opportunities and a growing firm, must be attractive to retain the top rainmakers.
However, this will pose challenges for owners, as to accumulating the necessary monetary capital to fuel rapid growth. Access to public capital will largely be unavailable. But, as I suggest below, perhaps public capital should not be pursued to fuel growth.
8. NEEDED FOR THE SUCCESSFUL FIRM: HUMAN AND MONETARY CAPITAL; MANAGERIAL TALENT. What holds back the evolution? Capital – it takes monetary and human capital to grow a firm. Great leadership, with a strong mission statement and extremely strong ethical foundation put in place, is one requirement. The other is a talented team of operational managers and technical specialists (financial planners, tax advisors, estate planning advisors) who can support the in-the-field advisors. Running the back office, efficiently and effectively, with procedures which ensure great client service, is essential. Such managerial talent, and operational talent, exists, but there are indications that truly top managerial talent for financial services firm is becoming increasingly more difficult to find (especially if the search is limited to those with a fiduciary mindset).
9. NON-PROFESSIONAL OWNERSHIP? I’m not certain that the model of non-professional (i.e., outside investors) ownership of the RIA firm makes sense. Professionals won’t desire to share profits forever with non-owners.
We already see “outside investors” (i.e., ownership by those who don’t work in the firm) in some of the larger firms that are growing. But, unless ownership remains in the hands of the professionals, the larger firms with outside investors may well fall apart, as top talent sees the value in owning a bigger slice of the profits pie, and equity creation pie, themselves.
There may be some exceptions, temporarily – such as firms that take small ownership slices of RIA firms but also bring to the firm more efficient management and enable greater growth.
But, it should be noted that large law firms and CPA firms didn’t form due to obtaining capital from outside investors. The law firm of 1,000 attorneys today was 400 attorneys a decade ago, and 200 attorneys two decades ago. Hence, I suggest that the large RIA firm of tomorrow – which has true sustainability – will be owned only by those professionals working in the firm. I’m not certain that large RIA firms which are owned partly by “silent investors” will endure.
Moreover, as an emerging profession, perhaps ownership of RIA firms should be restricted to only professionals. Or at least “control.” True professionals are not driven by the profit model alone, but also realize that a greater service to society is required. If RIA firms were to evolve into the large wirehouses of today, in which shareholders look for greater dividends with each quarterly announcement, “greed” motives intrude, and could jeopardize the fiduciary principles adopted by the RIA firm.
A lot of the discussion above relates to the management of scale, and the various challenges. One of the most interesting things I discovered when writing the report, which I cover in some detail, is the way advisory firms are starting to evolve the way they incorporate software into their business framework. Apparently, we’ve been going about it dramatically ineffectively in the past, and those people who are starting to figure out how to do it better are achieving more than 1,000% rates of return on their software investments, all-in, training and everything.
Another possible scale advantage will come from a virtuous feedback loop with vendors, who have created tools and various benefits for the RIA community, and then were astonished to find that there was a reluctance to accept their free offerings. They had to sell their free stuff, usually in a hostile environment! That is beginning to change, which will encourage the additional investment in other advisory offerings, which will be increasingly creative. One that I noted prominently in the white paper is a back office platform that will resemble the Apple “app” store.
Both of these developments—along with many others—are revolutionizing how we ACHIEVE scale in the planning business—and, of course, as Steve points out, the standardization of compliance duties (which are still confusing to my eye, but should be sorted out more clearly in the coming weeks) should help us all do what Ron talks about: finally get some business scale to the compliance side of the business operations.
I’m curious if other advisors have shorter comments, critiques or questions. My web site (bobveres.com) now includes responses and comments from Philip Palaveev, Michael Kitces and ActiFi’s Spenser Segal. (Mark Tibergien has also commented at some length, but his observations are not yet on the site.) And, of course, the whole white paper is free.
So… What does everybody think about these issues? Do we really need $15 million or more to create a viable, scalable advisory firm?
Bob, Stephen and Ron,
Great article Bob. After working for years as a business advisor for large law, CPA, consulting and advisory firms, all have very similar challenges when it comes to scaling operations, professional retention, concentrated business development skills (rain making), executive leadership, continued management of having a profitable business, just to name a few.
The one common factor driving success, has been and will always be leadership. From leadership comes culture, motivation, pride, an organization’s corporate constitution, and the desire for people to stay or leave an organization, among many others. Most successful advisors in the RIA industry come from a sales or technician prospective. They rarely have experience in leading and running a mid-sized business with many different issues and day-to-day requirements on management. These are the exact same issues that other professional service firms always have.
As the RIA industry develops, there will be a natural Darwin effect involving different business models, with the better ones not only surviving but prospering. The current challenge as well as the next, in the upcoming years is for advisors to find those better models earlier rather than later. The resultant being an advisor makes a single transition of their book of business, rather than a seemingly endless series of transitions.
The best solutions available to advisors today have all of the following attributes under one roof:
• Access to several major custodians using a single technology platform
• A range of institutional investment solutions from wide-open to highly structured
• A fully unified technology platform
• A central office all in the cloud with all of the software systems working as one
• An advisor’s compliance processes built into all aspects of the business
• The compliance aspects of a practice managed by the firm
• The advisor having the choice of using their brand or the firm’s brand
• Advisors control of compensation
• Control of issues important to the advisor’s success, all within the advisor’s control
• Being connected to a larger firm for other resources that might be needed
After previously building two such firms and currently assembling a third, I know they exist. The hurdle in today’s environment does not involve developing scalable back and middle office solutions that works effectively; it is in a advisor understanding the benefit of what they get with such an offering and what a reasonable price is for that benefit.
Sometimes an idea can be introduced too early in to the market place and quickly fade for that reason alone. Large Industry providers make quarterly business decisions base on what the market is ready for and when it is ready for it. Providing too much too early, dilutes the opportunity and raises the overall cost of doing business, resulting in a decreased benefit to the provider. By raising the bar without creating a significant long-term economic benefit to the provider, erodes the opportunity for sustainable competitive advantages that a highly effective company needs to survive. This is the main reason we see new innovation typically coming from small companies as a competitive advantage and not large. This is also why we see large companies quickly roll-out their own solution, shortly after small companies do.
Solutions exist for advisors to be more profitable, to operate with a unified technology, to leave the large BDs and independent BDs, even to leave their solo firm behind. The overhanging question is why would an advisor switch if it they do not understand the value in doing so. Just like many advisor’s client’s decisions, it is usually about how they feel (emotions), and less about research and logic. It is about more than just money and payouts. Usually an advisor’s decision to transition is more about emotion. The decision is typically more emotionally difficult with limited experience and not having easy access to information to compare and make an informed choices.
The way for the industry to achieve scale, is for the advisor to realize the benefit of scale. This can be difficult to do because of the noise and fragmentation of the industry as a whole. Noise and fragmentation in any industry always works to the largest providers benefit. And can work to the disadvantage of others.
Dialogue such as this via RIABiz is an effective way to raise awareness among advisors, and work toward gaining the knowledge needed to seek out better solutions.
Where will the capital come from?
The answer to where the capital will come from, is beyond the RIA roll up firms. As any internally generated development capital needed for the development of a world class RIA firm is viewed as the profit earned by private equity firms seeking to maximize returns with the shortest possible exit strategy. This is the case for Bob Veres and Ron Rhoades contention that sucessful RIA rollups must be owned by the adviser not outside non-professional interests requiring outsized equity interests for their capital.
There needs to be at least a $15 to $20 million equity committment to build a large scale, world class, advisory services firm to safely support easy to execute and highly scalable fiduciary counsel. Otherwise it may take years to slowly incorporate industry redefing innovation in the best interests of the consumer, modernizing the industry with advanced technology which takes the level of counsel provided beyond the human capacity to reason the management of a large number of custom investment portfolios in real time necessary for expert continuous comprehensive counsel.
Because scale is beyond the reach of the individual practitioner, the future of the RIA/advice business is in aggregiation of tens if not hundreds of individual RIAs. Unlike RIA roll ups of today where there is no unifing and scalable support infrastructure capable of being held to a rigerous fiduciary standard of care, these new advisory services firms will be faster (real time data management required for continuopus comprehensive counsel), better (capable of fiduciary standing) and cheaper (significantly higher level of personalized advice which is less expensive that the average retail mutual fund) modernizing the industry beyond anything the brokerage industry would deem possible.
Dodd-Frank takes the brokerage industry’s word that brokers do not render advice. The unintended consequence is the industry’s legal counsel can not easily retreat from its hard and fast rule that it is a violation of internal compliance protocol for brokers to acknowledge they render advice and as a consequence brokers do not have a fiduciary duty to act in the consumers best interest. Under Dodd-Frank the RIA not the broker is obligated to provide ongoing counsel after a recommendation is made in the best interest of the client. In response to Dodd-Frank, the brokerage industry is publically looking for ways to “dilute, water down or dismember the fiduciary standard of care,” precisely the counter productive strategy they should not pursue or acknowledge against the best interests of the investing public—which Congress and the SEC is charged to protect.
The future of RIAs could not be more bright and the brokerage industry’s continued hostility toward advice could not be more clear. Regulators are taking note and are no longer push overs for the brokerage industry as evidenced by recent rulings on the use of 12(b)1 fees by brokers. All that is missing is the emergence of large scale institutionalized support for fiduciary counsel fostered by the creation of large scale RIAs as Bob suggests.
The high level management and operational talent with a fiduciary mindset is there. You are absolutely correct that non-professional outside ownership of a firm comprised hundreds of RIAs does not have the same interests as firms totally owned by RIAs. What is missing is market leadership which brings a unifying faster, better and cheaper RIA business model which is both scalable and compliant with the highest fiduciary standard know to man. The push back has been every RIA with size wants all the other RIAs who might join to do things their way. The single most important outcome of regulatory reform is a common understanding of fiduciary responsibility around which large scale institutionalized support for fiduciary standing can be achieved to create scale not possible with individual practitioners of any size. This makes relevent the prudent processes, technology, functional division of labor/work flow management, statutory documentation, conflict of interest management and advisory services support necessary to make advice safe and easy to execute. This enterprise management perspective has been missing in the marketplace largely comprised of individual practices but leads to a preemptive adviser value proposition and higher earnings, margins and earnings multiple which are important corporate metrics which can not be achieved by individual practices.
Private equities firms understand this equation but they are outside non-professional management who seek outsized equity positions for their capital. Thus the chicken before the egg question, professional fiduciary centric management needs capital and advisers need scale. Will RIAs subscribe to a higher level of advisory services support far beyond what is possible today which can be held to objective non-negotiable fiduciary criteria based on statute, case law and regulatory opinion letters as that is what is required for scale. Then there is the question of capital resources required to create large scale institutionalized advisory services support which does not exist presently. As a professional manager, we must find a way to match expert advisory services counsel which is capital and technological intensive with the desires of advisors who truely want to act in their clients best interests in providing continuous, comprehensive, personalized investment advice perfectly attuned to fiduciary standing.
We are getting closer because we can identify the hurdles which must be over come, but the challenges remain.