Independent perspectives: New views of the RIA model

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.