I was 9 years old when Van Halen’s masterpiece album “1984” was released. That album had the same effect on me as it did many people my age—it changed my life. So much so that 36 years later, I still find myself approaching many situations by asking, “What would David Lee Roth do?”
With lots of uncertainty and angst over our current pandemic-impacted business and economic environment, I thought I would look to some of his famous quotes from throughout his career to determine, “If David Lee Roth was an RIA owner, how would he approach our current environment?”
RIA revenues are dropping, along with asset prices, causing many advisors to question the AUM billing model. Is now the time to abandon the AUM model and move to a fixed-fee arrangement with clients, to protect profitability in future market pullbacks?
“Some days you’re the dog, some days you’re the hydrant.”
Advisors and clients, generally, like the AUM-based pricing model. It is fairly easy to understand, it places the advisor and client on the same side of the table, and it’s benefited advisors over the past 10 years as we’ve had an upward-trajectory in the overall markets. As Michael Kitces stated at IMPACT last year, “I don’t hear the negativity about the AUM model … When we drill down to people who are delegators, the AUM model just works.” Understanding that some days are going to be better than others, I think Dave would stick with the AUM model.
Would Dave have any words of wisdom for clients who were feeling their advisor fees are unjustified during a market pullback?
“I can teach you to jump up in five seconds—it takes years to learn how to land properly.”
He said this to a reporter who was commenting on Dave’s famous splits he would do at the opening of every concert, jumping off the drum riser and landing in the middle of the stage as the arena lights came on. The reporter said, “You make it look easy—can you teach me how to do that?” With volatility up, clients should be valuing their advisor more today than ever, as they help clients navigate this turbulent time and ensure they are sticking to their long-term financial goals. Advisors act as an insurance policy for their clients by leveraging their years of experience through various market cycles to help their clients “land properly.”
What would Dave have to say to advisors upset by the fact the decade-long bull market has hit a snag?
“If you’re sitting on your laurels, you’re wearing them on the wrong part of your body.”
Not only are we suffering a market pullback, but the “new normal” is going to force RIAs to think creatively about their marketing efforts and their spending habits, as profitability is even more important in a flat-to-downward-sloping market. We don’t learn as much when things are easy. While difficult, I think resourceful RIAs will come out of this turbulent time better than before, using this moment to reevaluate process, culture and even vision.
We probably won’t know for a few more months exactly what the “new normal” will look like, but Dave has this nugget of wisdom to share:
“It doesn't get better, it doesn't get worse, but it sure gets different!”
Keep in mind that he said this years ago. Life in general, global pandemics aside, is ever evolving. We’re forced to forge ahead into the unknown and do the best we can. It’s not just the American way, it’s the human way. We are an adaptable species that always finds a way to flourish in all kinds of environments and emergencies.
For any advisors who want to dig their heels in and lament the fact that the future will undoubtedly look different from the past, Dave has this truth bomb for you:
“The hood ornament on your car is for telling you where you’re going. The rear-view mirror is for showing you how good you look while you’re getting there.”
That one is my all-time favorite David Lee Roth quote. It sums up both his personality and the general spirit of the 1980s. But if you unpack it, it does share some serious wisdom—you can’t get caught up on what things looked like in the past, you can only look ahead, chart your course for the future and hope you can do it with a smile on your face!
Matt Sonnen is founder and CEO of PFI Advisors, a consulting firm that helps financial advisors build more impactful and profitable enterprises. Follow him on Twitter at @mattsonnen_pfi
