The recent unfortunate announcement that Curian Capital decided to exit the TAMP business (turnkey asset management program) put a lot of advisors in a difficult position. Within a day of the announcement, many advisors told me they were inundated with emails and solicitation calls from people and firms that they have never heard of before. Each firm suggested that they were the perfect fit for the advisors’ business without knowing anything about the advisor’s clients or business. August was supposed to be a slower month, and now there will be a lot of due diligence, client conversations, and paperwork.
First Rule: Don’t panic.
Since the announcement, I’ve spoken to two types of advisors – the panic-stricken, looking-for-someone-to-blame advisor, and the cool-headed business, putting-together-a-plan advisor. The cool-headed business types, as you can imagine, was already prepared for challenges in their business, and while they didn’t anticipate their partner to stop doing business, they have a process for making decisions. In fact, the process for making solid decisions resonates through their entire business.
Second Rule: Follow a decision process.
Last week, I hosted a webinar that provided some best practices around the decision-making process for selecting a new partner. My goal was to help those advisors affected to look at their choices objectively, instead of using gut feelings or sitting through the “beauty contest” of pitches from wholesalers and platform providers. I also thought advisors could use a tool that would help them make a sound decision, and even provide a basis for communicating that decision to their clients. With that in mind, the following steps that may help:
- Talk to your peers. If you are part of a BD, study group or association, ask around to find out what other successful advisors are doing in their businesses. Your peers are going to give the positives and negatives of their platform choices without the fancy sales pitches.
- Decide what you want to be. Many advisors are committed to outsourcing, as it allows them to run a more efficient and profitable business (see Let it go), yet many platforms are “Rep as Portfolio Manager,” or can add time to your busy schedule by making you select strategists, custodians and/or managers. Decide what you want to outsource and what you want to insource. Ask yourself how you want your clients to see you – as a money manager or a provider of advice? Thankfully, the change of platforms is a lot easier than if you have to explain a problem with your own asset management capabilities or a problem with your broker dealer. How hard would it be to explain “firing yourself?”
- Narrow it down. Look at the recommendation of your peers based on how you want your business to run and begin the evaluation process. Document the process. Create higher percentage weightings in categories that are more important to you and your business and lower weightings for things that are less important. Consider:
- Financial stability of the platform: Have they been around for a while; are they going to be around? Do they invest in their business and have the scale to meet the demands of your business (and the business of all the other affected advisors and clients)? How transparent is the ownership and future plans?
- Investment products/strategies: Does the investment philosophy of the provider fit your planning processes? What vehicles do they use (models, SMAs, ETFs etc.)? You shouldn’t have to change your planning (what the client values) from your platform. Try to stay consistent.
- Costs: Along with financial stability, this should be very highly weighted. How transparent are the costs to the client and your firm? What are the account minimums? What are platform fees, per account fees, strategist fees and/or money manager fees? What about custodian, IRA fees, etc.? In short, what will it cost your clients and you to do business? I don’t have to tell you that the lower the fees, the better it will be for the client.
- Communication and ease of transition: Obviously, one of the hardest conversations you are going to have is with your clients. Find out what tools and resources are available for communicating to your clients and what the transition process looks like. How does the platform help with the paperwork and evaluation of current portfolios? What letters, presentations, or proposals are available and how can they help to communicate with your clients? What are the costs of the transition today? What is the commitment the firm is making to the advisor and to other firms? Can the custodian take existing securities from the old provider to reduce taxes?
- How does the “back office” run: Good ideas with bad execution can still really harm your transition; make sure you look at the back office. Rank your choices looking at single source vs. multiple custodians, ease of paperwork, end investor website and statements. Does the custodian have the capacity to take on the additional business, and how well does it interact with the platform? How do they process things like RMDs and rebalancing?
- Other things to consider: Practice management, technology and other services, like banking and trust services, are intangibles that can help sway a choice to one provider or another and should be considered. But personally, I would give them smaller weightings (as the head of practice management, did I just say that?). If you are even with the others, I would use these “other services” as a tie-breaker.
Act purposefully, and now
An effective evaluation of your choices can put your mind at ease and give you the solid footing to make educated, reasonable recommendations to your clients. Personally, I think the forced due diligence process we have in front of us can benefit almost every advisor. What is your decision-making process? When a client asks why you chose a specific provider, can you back it up with well-thought-out process?
John Anderson is Head of Practice Management Solutions at SEI Advisor Network
