Wealth Management EDGE kicked off Wednesday morning with a wide-ranging debate on some of the most pressing issues facing wealth managers, moderated by Matt Ackerman, chief brand officer at Integrated Partners, in a game show format.
Joe Duran, executive managing partner at Rise Growth Partners, argued that it’s imperative for registered investment advisors to have a big brand, one that makes a promise, unites people and attracts clients.
This is one of the biggest gaps between winning organizations and others, Duran said. Look at Fisher Investments, for example.
Michael Kitces, the chief financial planning nerd at Kitces.com and head of planning strategy at Buckingham Wealth Partners, disagreed, saying advisors don’t need a big brand. Rather, showing up well in your community is what makes advisors wildly successful.
When asked whether culture matters, Kitces said “yes,” but that for most advisors, it’s an expression of the founder and what the person does. As firms get bigger and grow beyond being founder-centric, culture starts to become what they’re doing as an organization.
And it’s not just a matter of being in an office versus remote.
“You can build culture in both, but you have to be intentional about what you’re trying to build in the first place,” Kitces said.
Duran argued that all firms have a culture, whether they’re intentional about it or not.
“Every day somebody shows up at your office, your clients show up, they’re experiencing your culture. That is not a choice,” he said.
He defined culture, as “a set of standards that you establish that are not compromising ‘this is how we show up.’”
But he said he meets with a lot of RIAs, and sees gaps in how they treat their own team members. Yet, they’re the ones delivering the experience to clients.
“The biggest gap in any firm is the CEO and whether they’re living up to the standards that they say they believe in,” he said. “We’re not selling shoes. We’re selling how we show up, and how people show up for us.”
On the succession planning problem in the industry, Duran said he was worried about it. If an RIA sells to a big firm, it loses much of its culture. If the first-generation advisor wants to maximize their value, they will want to sell to G2 down the road. But the dilemma there is that the G2 doesn’t have the economics to pay the first generation.
A minority investment model, Duran argued, is the only way to solve that dilemma. It allows G1 to equitize their business, while maintaining their culture.
Kitces took the other side of the argument, saying that markets are relatively efficient. Statistics show that about 1/3 of advisors have a formal succession plan in place. But the rest of them aren’t ready to exit just yet.
A lot of firms will write a check when you’re ready to sell; RIAs have become incredibly liquid. They can continue working up until the point they want to exit, call an investment banker and sell their firm in three to six months.
There’s a presumption in this industry that you have to find next gen talent, but that’s not the only way to exit and monetize a firm. It’s more expensive to develop talent rather than selling when ready, Kitces said.
The two did agree on one issue—the current custodial model is broken and has huge fiduciary issues. The issue, Kitces said, is that not every custodian makes the same money on assets, so there’s no way for RIAs to understand who’s cheaper and who’s more expensive. An advisor’s job is to minimize conflicts of interest, but there’s no way to do this under that model.
Duran agreed, saying the custodial model was evolving rapidly. He urged advisors to be thoughtful about the multi-custodial model. It gives you negotiating power.
He also ripped into private equity models, saying these firms have no regard for the quality of the end product. They only care about their return on investment. They are basically “bringing together a bunch of broken toys” to create a large wirehouse. These firms will do the worst deal to hit their EBITDA and exit. There’s a simple misalignment between their interest and the advisor’s interest.
Kitces agreed with the misalignment, but with a different lens. A lot of private equity firms come in and try to quadruple an RIA’s clients in four years. But it takes three to five years to develop new advisor talent. That means you’re growing faster than you can develop talent.
There’s a healthy level of growth for a service industry, but private equity wants to grow the business faster than a service business can naturally grow, he said.
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