As the financial services sector finds itself among yet another paradigm shift within the industry, it’s no secret that the RIA space is entering a transformative era to keep up with market demands. As firms of the future brace themselves to adapt to an ever-changing environment, traditional means of recruitment are no longer the most viable option for them to succeed—alternative approaches are needed. With RIA firms of every size vying to recruit top talent, it has become increasingly imperative that the hybrid RIA firm of the future differentiates itself from the competition by offering enticing package deals to incoming partners in a bid to maintain a high standard of excellence.
As advisors currently have the upper hand within the RIA space, firms need to reconfigure their onboarding packages to reflect the competitive nature of the industry. With that, optionality is a crucial component needed to attract dedicated advisors to a hybrid RIA firm. Optionality allows for a firm to offer multiple pathways to partnerships, as it provides flexibility and adaptability to meet the diverse needs and preferences of advisors—and in return, promotes both organic and inorganic growth for a firm. With that in mind, the most attractive option to entice an incoming advisor to join a firm is granting the ability to affiliate under multiple avenues, such as a W2, 1099, or an investment advisory representative partner.
Moreover, increasing incentives for incoming advisors with competitive package deals including equity ownership, retirement monetization programs for internal advising partners and mentorship programs will further captivate the attention of the best advisors. As propriety channels are highly sought after, RIAs need to capitalize on their offerings to maintain a competitive edge.
In parallel, mergers and acquisitions enable a firm to delve further into succession planning, as this grants the ability to absorb and integrate the practices of other existing firms—in return, helping to future-proof the business by acquiring specialized expertise, talent and technology that complements existing capabilities. Most importantly, this onboarding aids retention rates and promotes a stronger internal culture, as many experienced advisors are actively seeking new growth scale opportunities.
For firms leveraging M&A opportunities, this also provides another much-needed outlet as a means of combating the impending wave of the great wealth transfer. This comes as when advisors age out of the business and retire, the incoming generation of partners simply cannot afford to purchase their books of business. As such, small- and mid-size firms need to recognize that investing their resources into purchasing these practices serves a dual purpose—it alleviates the financial burden on younger advisors while still providing retiring colleagues with a viable exit strategy that preserves the value of their books.
Notwithstanding, with private equity firms slowly creeping their way into the battle to purchase existing books, upcoming small- and mid-size firms must be able to offer younger advisors the same opportunities to expand upon their own practices. Additionally, this helps firms to leverage on the multiple, as buying a business at six to eight times the revenue can hypothecate a firm’s value of 20 to 22 times the EBITDA.
In keeping ahead of the curve, the scale of a firm's growth for the platform for the future is also determined by developing technology as a means of simplifying and enhancing daily operations. Not only does up-to-date and advanced technology aid both respective and current advisors, but it also grants the opportunity for other talent roles to be onboarded in support of growing the scale of a firm.
This change is best reflected by hiring roles such as a chief technology officer or chief information officer, as implementing these roles helps support technical logistics. This is driven by employing aggregation tools that help capture dynamic and static assets in a single place, alongside virtual reporting tools that have embedded AI capabilities that will enhance the client experience that advisors can offer. Thus, allowing a firm to evolve beyond just a single custodian—granting greater safety and service capabilities.
For firms seeking to get ahead of the game, the path to greater growth scale is through adapting current operations to reflect the desires of advisors within a competitive landscape. This is showcased by offering multiple pathways to partnership, competitive onboarding package deals and implementing cutting-edge technology and retirement programs. As this is just the beginning of a transformative era within the financial services sector, firms that adapt their operations by implementing these critical components to reflect the new standards will continue to thrive and solidify themselves as leaders within the industry.
Jeffrey C. Gonyo serves as Senior Divisional President, Southern Division and Head of Recruiting of Steward Partners
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