Independent perspectives: New views of the RIA model

NATALIE GROEGER:  Hi, I'm Natalie Groeger, Managing Director of Business Development at Charles Schwab Advisor Services. 

Joining me today is Alan Moore, CEO and co-founder of XY Planning Network. Thanks for joining us, Alan.

ALAN MOORE:  Good morning, doing wonderful.

NATALIE:  Alan, I just wanted to talk with you a few minutes today about a unique challenge that we have in our industry, and that's serving the unique needs of young investors. I think the question many advisors have is how do I serve these unique investors and still in a profitable way?

ALAN:  Absolutely. So our backstory is back in 2012, I started my own financial planning firm. I was 25 years old at the time. And people asked, "How are you going to convince Baby Boomer clients to give you all their assets?" And the answer was I wasn't. And so what I said was, "Well, I really want to work with clients that are in their 20s, their 30s, their 40s, people who are dealing with similar things to what I am." So we asked the question, would a client be willing to pay for financial advice out of cash flow? And the answer was yes, our younger advised… or our clients are actually even more willing to pay for financial advice than some of the older generations, as long as they're seeing value. And so we started XY Planning Network to support advisors to work with next gen clients that historically have not been able to get access to a financial planner.

NATALIE:  How is somebody that's just starting out on this financial journey, how are their needs different than our traditional high net worth clients?

ALAN:  Younger clients aren't interested in a trimmed down version of… you know, of… of what you normally would offer your higher net worth clients. What they're interested in is comprehensive financial planning that's built for them and their needs. There's so many things that are happening in their life that, ultimately, a financial planner can really assist with it and really help them make good decisions. They may not have savings habits in place, and they may have debt that ultimately needs to be managed. So it is a… it's definitely a misnomer that working with younger clients is simpler or easier. Their needs are just different.

NATALIE:  So what products and services, what could a good advisor do that would support those unique needs of an investor that's just starting out?

ALAN:  Just starting out with a service model. In the end, you know, younger clients have more debt than assets. And so becoming an expert on student loans, on… on managing a mortgage and a car payment, things that our older, wealthy clients simply don't have. But it's also the marketing. Younger prospective clients go to the internet. They're looking for information and validity that you're an expert on their situation and what they're dealing with.

NATALIE:  How do you make a profit serving these types of clients?

ALAN:  Yeah, the mistake we see a lot of larger or more established firms make is they say, "Oh, we just won't charge the kids of clients. We won't charge the younger clients because, eventually, they’ll be rich." Especially, for an advisor who is starting their own practice, you… you don't have the luxury of waiting 20 years to… for a client relationship to become profitable. As an advisor, don't be afraid to charge planning fees or… you know, for the value that you're providing your clients. And so know that you can build a successful, sustainable business specializing in working with younger clients.

NATALIE:  Thank you so much, Alan. I really appreciate you taking the time today.

Hello, everyone, I'm Chris Reedy. I'm a managing director with Schwab Advisor Services. Today, I'm joined by Jack Straub. Who's a founder and principal with AdvicePeriod. Today, we're going to talk about creating modern client experiences that exceed expectations. Jack, thanks for joining us today.

Thanks, Chris. I look forward to our conversation.

So, Jack, today, it's not just enough to meet or beat a benchmark or an index for clients or family. Those clients have more choice than they ever did before. At AdvicePeriod, when you're thinking about defining those needs for the client and the family, what's unique? How do you approach that at AdvicePeriod?

So a lot of firms like AdvicePeriod, take a planning-first approach to working with clients, and from that emanates an investment solution, but also a retirement solution, estate planning solution, tax solution. And a lot of top firms are taking advantage of this opportunity to begin offering additional services to clients. They're expanding their service offering into legal and tax, bill pay, financial statements because it's an opportunity to really simplify a client's financial life. 

And we believe the more these services that we can digitally integrate, the happier our clients are going to be.

You know, oftentimes advisors are measuring the success of their firm by AUM, or number of clients, or revenue. You have a different definition, family served. Tell us a little more about what family served means and how does that fit into the culture of your firm?

So that's a metric, family served, that ties back to our mission of reinventing wealth management. That's our purpose-driven mission. So for us metrics like AUM or revenue, which are more standard in the industry, don't really tie back to us achieving that broader mission. 

Now, it isn't that financial stability to the firm isn't important, or we don't appreciate industry recognitions or accolades, but we're going to measure our impact and our progress toward reinventing wealth management based on the number of lives of which we're able to impact.

So the modern high net worth client is really expecting… one of the things we're seeing in studies is they're expecting customized guidance. 

When you think about customized guidance, how are you approaching that challenge, and do you think you have a different perspective than others in the industry?

We think the greatest opportunity we have to better service our clients is through technology. So from an internal perspective, can we more efficiently deliver our services through an automated back office, a cloud-based tech stack, which allows us to more profitably run our business, and then reinvest in people, which, ultimately, is why clients hire us. 

And then from a client perspective, can we use technology to change the experience and make it more innovative—paperless signup, mobile access, transparency. 

Ultimately, we believe that a digitally-integrated financial service firm is what clients seek. So over the next year, we're offering tax services, we're going to expand a legal service capability with our clients, all with the purpose of simplifying their financial lives. And we think we can do that very well for ultra-high net worth and high net worth clients through this digitally-integrated position. So by doing that it's going to put us in a position to help more clients, and, ultimately, impact more lives.

Jack, what we've been seeing in the last few years is some cost compression. There's an expectation from clients of transparency on fees. How do you approach fees and this issue at AdvicePeriod, how do you think about fees?

So the way we see it is that clients should pay commodity prices for commodity services, and then it's appropriate to pay a premium price if you're actually getting a premium service. 

One of the challenges that we're seeing is not necessarily fee compression within the industry, rather, it's appropriate recognition of what those value-added services are. So our expectation in the future is that the industry is going to pivot away from an AUM-based fee and the fee model looks… I think it looks more like a flat or fixed fee determined based upon a couple different factors: the scope of services that are being provided to the client, the level of complexity that's driven by the client situation, and the value that advisors being able to add. So we think this approach makes more sense because it's more transparent, it's more equitable, and, ultimately, it will be in the client's best interest.

When you look at AdvicePeriod, and you think about the fact that you're in 15, 16 states now, growth you've had, how do you scale that passion, that culture, the ethos?

This is the number one challenge that we face and I think any service business faces is people are our greatest asset, our top resource, and culture really drives a lot of that. So at the top, culture has to be a fit when we're hiring someone. So the way that we've had success attracting people who believe the same values that we do is really trying to tell the world what it is that we believe, and not trying to convince anyone that our approach, our values are right, but it gives them an opportunity to opt-in if our message and values resonate with them, so it's their choice. And, surprisingly, over the past several years, we've had a lot of success in this, and telling people who we are and what we believe, and it's attracting the right type of clients, teammates, and advisors. 

We have people with different backgrounds, coming with different levels of experience, and we believe building out a diverse team will be strong. And that's, ultimately, what we're trying to do here at AdvicePeriod.

Jack. Thanks for taking the time today to speak with us about exceeding client expectations and what you're doing at AdvicePeriod. We really appreciate you taking the time with us today.

Hi, I'm Chris Reedy, Business Development Managing Director for Schwab Advisor Services. Today, I'm joined by Mindy Diamond, President and CEO of Diamond Consultants, one of the wealth management industries leading recruiting and consulting firms. Welcome, Mindy.

Thank you for having me.

As you're speaking to RIAs today, things have changed quite a bit. We've seen huge growth in the RIA industry. What are you hearing from advisors about why they're making the decision to move from the wirehouse or IBD channel into the RIA channel?

Well, advisors' sentiment has really changed, and it's changed because people value freedom, flexibility, and control more than anything. People are driven by pushes and pulls, the pushes that are the frustrations, or things that are bothering them. And the bothers are usually about limitations, not being able to run the business that they want to. And the pulls are really being excited about becoming a business owner. Those are the major drivers.

You're really talking about control, and experience for the employees, and the clients. 

How is technology playing a role in that, either their ability to drive that control, or is there something that's changing besides that?

Yeah, I think that wirehouse advisors long thought of themselves as having access to open architecture.

And what that means is being able to, as an independent advisor, to really pull together best-in-class modern technology, and not being limited to the tech stack that a firm makes available to you, and the ability to customize that is real game-changer.

Do advisors' economics for themselves change across the models, and what new opportunities present themselves as they move to the RIA model?

Yeah. Well, the ability to control one's P&L is a tremendous driver. 

At the outset, it's excitement about better take-home economy, the notion of going from a payout in, say, the mid- to high-40s to take-home economy of, say, 60- to 65%. But the more these advisors dig in to pro forma P&Ls about what the business could look like as an independent, it really begins to see that the ability to add inorganic growth to the mix, to recruit, and acquire gives them the ability to expand margins, and, ultimately, really impact overall enterprise value.

So, you know, the great fear for an advisor when they're moving is ‘Will my clients follow me?' Talk about that? What do you tell advisors when… do you get asked that question? What do you say to them?

Portability is in direct response to how deep a relationship you have with clients. If you've always done right by them and have a relationship based in trust, and, most importantly, you're able to create a narrative in describing why you're going elsewhere that says to the client ‘I'm moving for your benefit. Here's what's in it for you.' most clients will have no problem in following.

Mindy, thank you. It was a pleasure. And I look forward to speaking with you again.

My pleasure, Chris. Thank you.

Hi, I'm Jeff Blumenthal, Managing Director of Business Development on the West Coast for Schwab Advisor Services, and I'm excited today to be joined by my colleague, Janelle Ward. Janelle works within our Business Consulting and Education Team. 

Janelle, great to see you. Thanks for joining me this afternoon.

Jeff, thanks so much for having me.

Well, let's dive right in. When we're talking to advisors in the field, we constantly hear this concept of best of breed technology. Can you talk a little bit about what that might mean?

Best of breed, when it comes down to it, is the best software within a given category. 

While the core capabilities are often superior, importantly, best of breed enables advisors to create a purpose-built client experience. Ultimately, that's a driver of why advisors choose Schwab. 

They want the flexibility to work with providers of their choosing that best support their ideal client experience for today, and that experience as it's evolving into the future. 

And the best of breed technology approach aligns to support that vision.

I would imagine in this market environment that advisors are looking to interact with their clients using mobile with video technology, and there are lots of tools and resources in the market that probably make it a little bit difficult to decide what is best to use. Does your team help make those decisions?

Absolutely. We're helping advisors to understand the firm needs and helping them to also clarify their technology vision. How will technology ultimately support not only the staff, and business needs and experience, but that ideal client experience? 

We help put a detailed plan together that identifies the solutions that are going to be critical on day one at the launch of their firm or their transition to Schwab. And then, as well as looking at six months, 12 months, and beyond.

And in addition to the Schwab technology, the plan most often is going to include portfolio accounting software, which is going to deliver billing and reporting and sometimes trading and integrated client portal experience, client relationship management, as well as financial planning tools. And the plan identifies the components that are going to be most important to run the business from a technology standpoint, including what it's going to look and what it's going to feel like from the client standpoint.

And how does Schwab's technology integrate with some of these third-party systems?

Our goal is to help advisors connect the data and the workflows across many different platforms because we know that Schwab's technology is only one of the advisor's larger technology ecosystem that they're relying on every single day. 

We offer advisors a broad range of secure, high quality integrations with most of the leading technology providers today. And what's really exciting in the RIA technology marketplace, and at Schwab, is that number of providers is ever-growing. With our broad range of integration solutions, advisors also have the option to build customized integrations that enable their systems to access Schwab data whenever and wherever they need it.

Janelle, I would imagine that advisors often have a dream of what they would like to deliver to clients, but they're not quite sure how to get there. How does your team help bring that dream to reality?

Great question, Jeff. We come alongside as a thought partner. We're not here to make every decision for the advisor. Instead, we're here to help them uncover what truly matters most to their firm, and, ultimately, what experience is it that they're trying to deliver to their clients.

We'll help them think that through, put all of that into a detailed plan, and, ultimately, be there as a thought partner throughout the entire process.

Well, Janelle, it's been great to catch up this afternoon. Thanks for taking the time to walk us through the Schwab Technology service delivery. And, thanks, have a great day.

Jeff, thanks so much for having me. Have a great day.