Size Matters


My Twitter feed and email recently blew-up when the new Schwab RIA benchmarking survey data was released.  This response caught my attention because in my experience these reactions were usually caused by a survey release from Cerulli, Tiburon Strategic Advisors or Aite Group.  What was so unique about this year’s Schwab survey?  Is it the urban myth that size matters?  Let’s take a look.

Schwab survey

Schwab has a unique and dominant market share that facilitates and legitimizes their survey.  They talk to clients and get their real-world experiences.  This survey is not their first rodeo, it is their 11th Annual benchmarking survey.  Schwab knows the questions to ask and the lengthy survey proves it to clients.  My only problem with the survey is that it is self reported.  That works for dating websites but I wonder if that holds true for RIAs.

I complement the Schwab survey with data from two top practitioners.  My first stop is Michael Kitces and his podcast.  He is one of the tenured independent RIAs and uses social media to convey his message.  My other source is Josh Brown the master of leveraging social media through his tweets and blog.  Don’t fall into my initial trap of characterizing these men as a glorified financial planner (Kitces) or a bucket shop stock broker (Brown) Both have established firms that we ALL would be proud to call our own.



Spending your RIA scale dividend

As the survey shows size creates greater profits.  Each firm needs to decide how to spend their newfound money.  The easier decision is to keep it ourselves but easy usually doesn’t win the race.  I would recommend spending the excess profits on new professionals and better technology.  Professionals will allow the firms to continue to grow and survive for longer than the next liquidity event.  The right professional is expensive and usually not focused on immediate revenue.  Good technology is also not the cheapest solution but should be viewed through the lense of the client.  Clients don’t want screen-scraping technology and ultra high net worth clients would like reporting on their numerous alternative investments.  Something that your brand name competitors don’t and can’t provide.



Warning

What I have noticed is that numerous large wealth management firms have started to make the same mistakes as their previous firms.  They are building proprietary products.  Let’s leave the fund of funds and private equity deal access to the large financial services firms.  The margins are seductive but you can lose your independent trust dividend a lot easier than you think with proprietary products that don’t perform.



Size does matter but not for the obvious reasons.  Country music gets this right and Joe Nichols leads us on an inspiring journey that ends with being a good fiduciary.  We all need to get our minds out of the gutter and focus on how we can have a positive impact with the gifts clients and the independent fiduciary model have given us all.

Comments

Post a Comment

Popular posts from this blog

Inorganic

Image
Our industry has always looked down on Wall Street’s recruiting checks.  Last week there were numerous announcements that independent firms were offering advisors money to purchase their practice.  The term for these transactions is inorganic growth.  This week we will look at why these transactions are the new rage and examine if they are better than the old Wall Street checks. Wempy Popeye and financial advisors fall for the “I’ll gladly pay pay you tomorrow for a Hamburger today” pitch.  Unfortunately Popeye and and most financial advisors provide their hamburger but seldomly get paid what the firms and Wimpy promise .  Why?  The advisors need the cash and Popeye is gullible.  On Wall Street the deals adjusted when the advisors changed firms looking for a new deal every five to eight years.  The recent Luminous departure shows that the advisory contracts need to be adjusted.  The new contracts are written by experienced firms and lawyers to prevent serial departures. 
Read more

Stop Judging

Image
I have known that I have MS for over four years.  My doctors believe I have had MS for over twenty years.  Initially, When I received this diagnosis  I was very opinionated when I saw disable people. I assumed the worst. As a currently disabled person I can educate and warn you regarding things you shouldn’t say to me or disabled people..  This blog will educate on my disability. The places it manifests itself and how you can react and support me and other disabled people. The three items are: 1.) Needing a walker 2.) Government disability  3.) Falling MS causes me to loose my balance and fall.  The walker prevents this reality  I look at walkers as being as sign of old age,  I was incorrect and a good walker is an aid!  With a walker I fall less often.  I might look old, but I am OLD! Our government provides support to the millions of MS patients in the US.  Support is through Social Security and must be approved.  I am approved. The service can be cancelled if i get a full time job.
Read more

Summer Changes

Image
  Our summer is almost over,  What did we learn during all of our downtime?   I will summarize all of my observations and share my plans on what I will implement when I return to my office.  I discovered/ learned 6 items on my beech lounging, morning walks and social media tolling that I’ll share.  Hope they help.  My first and easiest change was my eye glasses.  Many of my friend asked it was trying to look like Elton.  I wasn’t…. The next three changes were business related. The changes will be voted on by my colleagues.  Steve Jobs of solving client problems the client didn’t know they had will be our guiding light.  I tried to change a few items. The obvious item what I changed was my eye  glasses.  The other areas were business related and I wanted wanted to be in control of my changes. The first change s our business’s model.  It has taken years to realize that I can’t beat thr market index.  Growing up on Wall Street this change was difficult.   Alpha is difficult to achieve an
Read more