Independent perspectives: New views of the RIA model

CHRIS REEDY:  Hello, I'm Chris Reedy from Schwab Advisor Services. I'm joined by Marcy Shipman, a senior business startup consultant here. Marcy, you've consulted with a number of advisors, who are considering breaking away from their current model, either a wirehouse, regional or IBD, and moving to the independent RIA channel. I imagine a lot of those advisors feel a little overwhelmed and sort of were asking, "What do I do next?"

MARCY SHIPMAN:  Yeah, I often ask advisors, really, what are their top concerns when considering launching into the RIA space? I, of course, get a variety of answers, but there's a few common responses I hear. They include concerns about doing the right thing for the client, concerns about the transitioning of the assets and the support they'll receive, and even concerns around compliance because they've had it provided for them in their current environment. But most commonly, I really hear advisors say, "I just don't know what I don't know." They tell me they need help in making sure no pieces go left unchecked, and that, ultimately, nothing falls through the cracks.

CHRIS:  So you said they don't know what they don't know, but they must know something about what they're wanting to achieve. What are some of those motivations driving them to speak you?

00:01:10
MARCY:  Yeah, the number one thing I hear from advisors is they really feel like flexibility and autonomy in the RIA space provides… will allow them to provide a better experience for their clients. In fact, according to our most recent independent advisor sophomore study, 94% of the advisors reported that they chose the RIA model to really gain the freedom to ultimately do what's best for their client. 

Advisors also like the idea of having more control over the choices made and budget spend, especially when it comes to technology. 

Advisors have often also heard that RIA firms benefit from increased earning potential. So we actually have the ability to run a model for those advisors, comparing maybe what their potential revenue looks like in the RIA space to what they're currently experiencing in the wirehouse or the IBD model.

00:02:01
CHRIS:  I heard one of your colleagues say once that they had advisors tell them it feels like putting together a puzzle without having the picture on the box in front. How do you help them build out that picture? Is it process?

00:02:13
MARCY:  Yes. Advisors often have that vision in their head of really what they'd like to create but maybe just can't figure out how to put the pieces together to meet that vision or haven't even taken the time to really figure out the pieces, so that's where our team comes into play. As you said, we provide a process. We call it firm design, and it gives advisors that clarity and that confidence to build their vision. We talk about who is their client, and based on that, what services and experience would be needed. We like to talk about office space, staffing, marketing, really any pieces of the puzzle to help them create that vision. Throughout this process, we also share with them information from our annual Benchmarking Study to, ultimately, help them better understand what other RIAs are doing. And then at the end, we really want to lay out those clear next steps to help them realize that vision and ultimately make sure that no pieces go missing.

00:03:05
CHRIS:  As they go through that process, I would imagine a lot of their concern is around the client experience.

00:03:12
MARCY:  Absolutely. They've, typically, been very limited in their current environment on how they support their clients, maybe more specifically, how they charge this clients for those services. Advisors are hearing more and more about the experiences that maybe family offices offer, or they're hearing from their clients about additional services that they're interested in. Many advisors just aren't fully aware, unfortunately, of the additional freedom that they can gain in the RIA space. So we really like to spend time talking with advisors about what additional pieces might make sense to add for their ideal client base, and then, ultimately, how they might charge the clients for those additional offerings. Technology is another area advisors like to spend a lot of time on. As you know, Chris, there's just so many options out there for them, so really learning more about which solutions are best for them and for their clients is really important.

00:04:04
CHRIS:  So it really sounds like your role is to help advisors imagine the employee and client experience they would like to have and plot a course to make that happen.

00:04:13
MARCY:  That's exactly right. We really want to be that thought partner for advisors. Our goal is to, ultimately, provide that clarity and that confidence to help them make the right decisions for both their clients, and, really, for the future success of their firm.

00:04:27
CHRIS:  Well, thank you, Marcy. If you're an advisor who would like to learn more about the independent RIA channel, please visit advisorservices.schwab.com.

01:00:05 – NATALIE:
Hi, I'm Natalie Groeger, Managing Director of Business Development at Schwab Advisor Services. And today with me, I have Jason Snipe of Odyssey Capital Advisors. Hi, Jason.

01:00:17 – JASON:
Hey, Natalie. How are you?

01:00:19 – NATALIE:
Very good. Thank you for taking the time today. I wanted to dive into a little bit about the process you just recently went through in selecting a custodian to work with you, and to support you and your firm. But so that we have a better background on your experience and what you went through, why don't… why don't you tell us a little bit about your journey to independence and… ad how you got where you are today?

01:00:43 – JASON:
That's a great question, Natalie. You know, as I… as I look back and… and… and really look fondly on that experience, you know, I… I came from the IBD space, you know, where, essentially, you know, I felt like we were a franchise of a much larger corporation. And, you know, to be frank, I didn't really know what an RIA was. You know, I had kind of consulted with other friends, colleagues in the industry, and they had shared this idea of going independent and establishing my own RIA. And, you know, so I did my own independent research, you know, started to look at all the banks and the custodians that are out here that I could partner with, and, you know, that… that was the start of my journey. And I think for me, as we're in this very much a relationship-oriented business, it was very important that, you know, I selected a partner and not a vendor. And that… that was kind of the experience I… I had with Schwab as… as we took the next steps.

01:01:45 – NATALIE:
So you start… you said that you started with, you know, talking and… and finding out more about the independent space. I'm glad you know what an RIA is now. But you… you start to learn a little bit more about it, and then you go out and to select and talk to the vendors out there that are options for you and the custodians. So you start talking to Schwab and some other firms, and… and what really was the criteria? What was the process you went through in evaluating all the different options that were available to you?

01:02:13 – JASON:
So I think one of the things that's most important to me is really learning from others. So one of the things I really appreciated about the Schwab experience, which is a little different from others was the willingness to connect with other advisors and other firms, that some had recently made the leap to independence and some that are obviously far more mature. And that was a great experience for me, where I was able to ask a lot of questions, things that maybe you can't find on a website or read in a white paper, which was extremely helpful in… in the decision that I ultimately made, which was, obviously, partnering with Schwab.

01:02:53 – NATALIE:
Was there any specific criteria that you thought was… was important for you in finding that partnership, or was it really, you know, these experiences that other people went through that… that led you to that decision?

01:03:06 – JASON:
So one of the other major things for me was I got the opportunity to really share our vision, you know, as a firm and what we were looking to accomplish in the marketplace. You know, so getting that opportunity to share that, and… and kind of the feedback I received was, ‘Hey, Jason, this is an open slate. You know, this… this is our offering. This is what's available to you. We could customize it to… to your needs, ultimately, to support you.' And that… that's what felt great for me, and it really was a catalyst as I started to move forward, and… and… and launch our firm, which was very exciting for us.

01:03:44 – NATALIE:
So let's go back to those interviews that you… let us learn from that, let… let us pick your brain from that. What did you hear in those interviews when you said that you talked to other people? What… what were some of the struggles that they went through? What are some of the lessons learned you… you… got from them?

01:04:00 – JASON:
So one of… one of the major… you know, one of the major takeaways, I should say, from just interviewing, talking to others, was not being bashful about our vision and what we're trying to accomplish, right? And understanding, ‘Wow, the independent world is a very different world from the IBD space or the broker-dealer space.' And knowing that some of these things were possible, right? Whether it's AUM, or building a customized solution for your client, or… or a service deliverable and… and really being able to brand it yourself, and… and looking at your custodian as a true partner, those are the things that were… were major takeaways for me, and…. cuz it… it made me feel like, ‘Wow, we could really grow this thing the way we want to grow it, with… with there no boundaries here.' So that was very encouraging, you know, and I think that it was probably the strongest part of the process for me.

01:04:56 – NATALIE:
Was there anything looking back at it now, hindsight is 2020, is there anything looking back now that you wish you would have spent a little more time on, or did some further investigation, or been more prepared once you finally did decide to make that change?

01:05:10 – JASON:
So that's another great question. You know, to be honest with you, I think that, you know, experience is the greatest teacher. You know, Schwab was very effective in… in kind of sharing the information, some of the things that I might need. And, you know, that was great, and I was able to kind of explore some of those, you know, items, whether it be compliance, or technology partners, or whatever… whatever it may be. But allowing myself to actually go through the process myself, and now two years in, you know, obviously, we've learned a ton. And I think that the best advice that… that I would say, which I've mentioned earlier, is just really being clear about what your vision is and being thoughtful about it, and sometimes even taking a step back to really understand what that is, you know, so you could clearly articulate it to a potential partner.

01:06:05 – NATALIE:
Thank you, Jason, so much for sharing with us today your vision and the process that you went through in selecting a custodian. Your insights will be so helpful for others that are going through this process today.

01:06:17 
Once again, I'm Natalie Groeger, Managing Director here at Charles Schwab. Thank you and have a great day.

01:06:23 – JASON:
Thank you, Natalie.

My name is Scott D'Alessandro and I am a Managing Director for Business Development in the eastern half of the US for Schwab Advisor Services. And joining me today is Dave DeVoe from Berkeley, California, founder and CEO of DeVoe and Company. Welcome, Dave.

Hey, Scott. Great to be here.

Thank you. And I appreciate you joining me today. We're really going to be talking about ownership for advisors coming from the wirehouses or the independent broker-dealers. and, really, they don't have to be all things to all people because there's different options of independence that I see out there. And so there's a lot of different models in order to go in independent.

Dave, what do you think is going through an advisor's mind today, as they're thinking about going independent?

I think a lot of it is focused on what are the options? I mean, good news, wide variety of options. But I'd say what they should be starting to think about is what is most important to them, so having the clarity on goals and objectives. And perhaps at one extreme, I'm wired to be an entrepreneur. I want 100% ownership. I want to, you know, clean the coffee pots and buy the printers, and all that stuff. Or the other extreme, wait a second, I just love working with clients or doing the investment management. I just want to go to a place at my office and get to work. So a continuum of options rooted in your goals and objectives.

Let's take a minute and just talk about the economics, not only from the front end, but the value of their practice in the future. Can you spend a few minutes on that?

You know, the front end, it's great because you can sort of dig through the seat cushions, and pull together some money, and launch it on your own, and have 100% ownership, or you can do something in the middle. 

The good news is depending on how you want to approach it and how much control you want, you have a very wide options set.

From an economics perspective, you know, I think about the advisors starting their own practice and two of the key drivers or the highest expense is office space and human capital. 

What are you seeing as far as trends and what people are learning from this digitalization era?

So for any advisor that is contemplating breaking away and setting up shop, the good news is, is your employee pool, both the quality and the economics is better than it's ever been because of this remote structure that can be in place. 

Also, on the real estate side, you can have a model where you don't even need real estate. 

Many advisors are in a position to potentially start remotely, and one less expense that they have to worry about. Very exciting.

Let's talk a little about growth. What are you seeing on the M&A acquisition perspective?

Yeah, RIA M&A activity has been hot, red hot. We've now had six successive record years of activity, and we anticipate another five, even seven years of M&A activity that's going to eclipse everything we've seen to-date. So those advisors that join this industry and are curious about growing aggressively should take a hard look at mergers and acquisitions.

So the last question I have for you, you know, as people are thinking about starting their own practice, what advice would you give them?

I'm sure everyone is focused so much on the technical side of the equation, but I'd encourage folks to pause that activity and really do some reflection. You know, you've been doing this for 25 years. You now know that the goals and objectives, what a given individual seeks to achieve, how they want to spend their time and energy, what they want the next chapters of their careers to look like, even what sort of economic outcomes they want. 

So I guess my advice would be, you know, start by taking some naval-gazing time and think through what you seek to achieve, those goals and objectives, because it can enable you to concentrate much more effectively on the option set with that clarity.

Well, I thank you very much for joining me here today and spending the time going through this. Again, have a wonderful day. Thank you, David.

Fantastic. Thanks, Scott.

Hi, I'm Jeff Blumenthal, Managing Director of Business Development at Schwab Advisor Services in the West. And I'm joined today by my colleague, Tony Parkin. Tony is a Vice President and runs the Business Consulting and Education team at Schwab. Tony, it's great to have the opportunity to spend some time with you today.

Thanks, Jeff.

Can you talk a little bit about what your team has built to help advisors in transition?

Many of the advisors that we work with, as you know, get a little locked up at the idea of executing on a dance that involves a lot of choreography. 

And this concept of discover, plan, and launch really has resonated with many of them. And it's really become a mantra of sorts for our team of consultants who work with them in this discover phase of looking towards independence.

Tell me about what that means when an advisor interacts with your startup consulting team?

First, is truly them discovering all the options of independence. 

What are all of the options that underlie that decision to become a registered investment advisor? 

So that first piece is truly understanding the model and the opportunities that exist in the model. And then, second, and of equal importance, is what is the firm that that advisor envisions? 

We've invested in and launched an offering earlier this year that we call our firm design offering, which gives us a really structured way to have a deep discovery conversation with advisors evaluating a transition to independence to understand everything that we can about who they are, who their team members are, who their clients are today, what they offer those clients, and then, importantly, what they would like that firm and that client base and that team base to look like years down the road.

And then at the end of that process, we have something that we call our firm design blueprint. It's literally a 16-page document that we hand over to them that plays back all of those conversations that we have, that played back to them the plan that they have decided that they want to move forward with.

Let's talk a little about how your team can help advisors select technology and implement it in their new firm.

Yeah, technology is a huge part of the conversation, especially these days. 

We have a team of technology and operations consultants that specialize in working with advisors looking to transition to independence. We're able to give them a pretty clear picture of what some of that tech stack should look like. And even after that, make some introductions to some key parties in the industry that can help them take action on implementing those systems and those processes.

Can you give me some background on what your team does to help advisors actually move client accounts and start the firm?

Yeah, absolutely. At the end of the planning phase, we have identified many of the third parties that a firm is going to need to work with to get themselves set up and who will act as key partners to their business ongoing. 

And then there's almost a whole separate track that our business transition consultants come in and start to handle around the actual movement of the clients and the assets from one system and one broker-dealer to another.

They spend a tremendous amount of time with the advisors to make sure that everything they and their clients need from a custodian we have and we can deliver on, and they understand how those capabilities of our systems work. And they also step in to help keep a lot of those other interactions with the key third parties on time and those parties on task to make sure that the group of people that are working together to have a successful transition, both in the advisor's team, our team, and in those third parties I mentioned before, are dialed into a plan that's really clear for everybody.

Tony, thanks for joining me today. 

I'm Jeff Blumenthal with Schwab Advisor Services. Thanks, and have a great day.