“Use common sense, if it’s not how a client normally acts, your 'spidey sense' should tingle,” says Tom Embrogno, executive vice president of Docupace.
Watch for red flags such as odd dollar amount requests, requests to send money to unfamiliar or foreign banks and incorrect client signatures can help advisors stay ahead. And the most basic safeguard: require advisors or staff to have direct conversations with a client before the money can go out.
More and more investment advisors are looking to grow their business through mergers or acquisitions. But while these deals present a great opportunity, Private Ocean CEO Greg Freidman cautions advisors to really investigate the firms they’re looking at. “Mergers between RIAs are like marriage without sex,” he says. As he found out, an unintended consequence of the 2009 merger between Friedman & Associates and Salient Wealth Management resulted in a substantial drop-off of client referrals for three years.
Over the next few years, expect deals in the RIA space to heat up, says David DeVoe of DeVoe & Co., an M&A consultancy. Especially as the average age of a firm owner is approaching 58, he says. And RIAs have become the dominant acquirer of other RIAs, with 35-40 percent of RIA M&A deals being done by consolidators.
For advisors looking to sell their business to younger partners, it may be difficult. Firms above the $200 million mark are too expensive for the next generation of younger partners to buy out, DeVoe says.
“Succession planning is not about the number—the valuation—it’s about people,” says Angie Herbers of coaching firm Angie Herbers Inc. “If you can’t build leaders, you don’t have a successor.” And building a successor starts small, by providing a nurturing environment for employees and rewarding them with both praise and perks.
An employee will almost always choose their personal lives over their professional lives, versus an owner who will always put the business first. Instead, firm owners should build processes that don’t force employees to choose.
Many in the industry want to see some harmonization of the separate sets of rules between brokers and investment advisors. But David Tittsworth, president of the Investment Advisers Association, warns harmonization is “code for imposing broker-dealer type rules on investment advisors.” And Skip Schweiss, managing director of advisor advocacy and industry affairs at TD Ameritrade, says that if the industry does get a uniform fiduciary standard, “it’s not going to be the 40 Act. We’ve lost that battle.”
While Ron Rhoades, president of ScholarFi, argued that investment advisors are “out-gunned” by the broker-dealer industry in Washington, D.C., Tittsworth argued that the industry can't take this [disparity of resources] "lying down." He, Schweiss and Tittsworth noted the investment advisor community’s success in fighting off FINRA as the industry’s SRO. “We fought this thing," Tittsworth says.
Former Senator Barney Frank also pointed to the power of advocacy, saying “this legislation demonstrated one thing, money is a major factor, but when the public gets engaged, folks will kick money’s butt,” Frank says.
“Don’t let the tail wag the dog,” says James Carney, president of ByAllAccounts. Don’t let technology run your business. When purchasing new technology, it’s the perfect time to review processes and make sure everything is as efficient as possible, says Dave Welling of Black Diamond.
But advisors should be careful about buying technology that doesn’t fit with their practice; even the best CRM system or goal-planning software is not going to perform effectively if it doesn’t fit within the advisors’ practice.
Today, advisors have to be prepared to serve long-term, older clients using a traditional approach, but then use a different approach for their children and other NextGen clients, says Ron Carson, founder of RIA firm Carson Wealth Management Group.
Carson says his “wake-up call” came when speaking with one of his best clients, who is 89. The client loved the firm but told Carson his kids “like you, but not going to keep you.” Why? “They don’t think you guys are up to the times.”
Now Carson has updated technology, developed new processes around building relationships with younger clients and created an advisory board for younger clients. But it’s still a challenge. In a recent wealth transfer, the next generation stayed with the firm, but it took some persuasion, he says.
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