RIAs cannot achieve their growth goals—organic or inorganic—without proper professional management in place. Unfortunately, many advisors have not yet come to that realization.
As we sing the praises of chief operating officers and the role they play within RIAs (Following the success of our COO white paper and personal enjoyment of interviewing the profiled COOs at the end of 2018, we at PFI Advisors declared 2019 to be “The Year of the COO.” We launched our COO Roundtable podcast in January and have spent the entire year speaking with advisors about the benefits professional management can bring to their organization.) many advisors push back and argue, “We don’t have enough for him/her to do – it will only take six months to get our tech stack in order, and then we’ll be stuck paying a high salary to someone who isn’t busy and who isn’t bringing clients to our firm.” They falsely believe that this position isn’t worth the salary a COO would command.
My response to these short-sighted advisors is always the same—I pose the rhetorical question, “What is your time worth?” If the advisor is freed from all day-to-day tasks and functions associated with the running of the business—from hiring and training employees to correcting performance reports to maintaining system logins to enhancing the client portal—couldn’t they generate more new revenue for the firm than the cost of the COO’s total compensation?
With a fully dedicated focus on business development and client service, would the advisor not bring new clients and additional assets to the firm? With more time at their disposal, would RIA owners not have the ability to meet with more advisors and propose their firm as a legitimate landing spot, especially when they can tout the professional management they have put in place?
Advisors commonly make the mistake of comparing the value of the COOs time directly to the value of their own time. It’s implausible to claim these “low-value tasks” are not worth a COO’s salary because, without a COO in place, it is the advisor who is performing these “low-value tasks.” If the advisor cannot increase revenue by more than the COO’s salary when they rid themselves of the tasks associated with managing the business, then by no means should they look to bring in professional management.
That is the analysis that needs to take place in order to make the determination of hiring (or not hiring) a COO. We are not analyzing the value of the COO’s time; we are analyzing the value of time the COO can put back in the hands of the advisors and all that advisors can do with their sole focus being on clients and new business development.
Matt Sonnen is Founder & CEO of PFI Advisors, an operations and technology consulting firm for RIAs. Follow him on Twitter at @mattsonnen_pfi.
