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.
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