Q86 – How To Run A Large RIA With Only One Person?

Also available as podcast (Episode #86)

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How To Run A Large RIA With Only One Person?

While the definition of “large” (or as I used in the episode, “giant”) is subjective, the question is could you run such a firm with a very limited staff?  Perhaps solely yourself?  With the abundance of outsourced solution providers in the marketplace, you can outsource more of running a practice than you likely realize.  Arguably to the point where you could in theory run a large Registered Investment Advisor entirely by yourself, albeit with the help of the appropriate vendors.

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Full Transcript:

How to run a large RIA with only one person?  That is today’s question on the Transition To RIA question and answer series. It is episode #86.

Hi, I’m Brad Wales with Transition To RIA where I help you understand everything there is to know about why and how to transition to the RIA model.

If you’re not already there, if you go to TransitionToRIA.com, you’ll find all the resources I make available from this entire series in video format, podcast format. I have articles, I have whitepapers. All kinds of resources to help you better understand the RIA model. Again, TransitionToRIA.com.

Today’s episode is going to be a fun one. I figured this would be a fun exercise to go through, to provide inspiration of what is potentially possible for you in the RIA model.

As I stated at the top, could you run a large RIA with one person? In this case, large is a subjective term, but what I’m alluding to here is at least in the hundreds of millions of dollars in assets.

If you get up into the billions, which would be considered large as well, this might get a little trickier. But I’m not alluding to a $30 million practice.

The idea is, could you run an RIA with one person with hundreds of millions of dollars in assets with one person? That’s what we’re going to talk about today.

I talk a lot about the different pathways into the RIA model, the different ways you can outsource things. The different kind of so-called supported independence approaches, where there are solution providers that have bundled up a lot of the needed solutions and they provide it to you in one bundled package. There are some wonderful providers.

On this episode, if any of those bundled solution providers are not a fit for you and you wanted to build it all yourself, the thought is, to what extreme could you outsource all the different functions to the point where is it even possible to only have just yourself running it?

The only thing you or your other fellow team members, as advisors, do is interact with the clients. Could you outsource everything else to the point where, again, if it was just one advisor, you’re literally the only person on the team?

I’m going to describe sort of an extreme example with this. I’m not suggesting this is necessarily realistic to do, but I hope it at least provides some inspiration to what is potentially possible.

Maybe you don’t want to take it to this extreme, if you were to transition the model, but you might realize, “Oh, wow, there’s a couple of those pieces that would be great. I didn’t realize there were those resources that I could outsource that too.”

So, again, that’s the purpose of this episode.

I’m going to go through a list of things that are part of running an advisory practice and point out examples of solutions in the marketplace that you can outsource to.

This is not an exhaustive list. There’s no particular order to the list. But I want to give you some ideas of what is possible.

First, is on an administrative standpoint. If you have an assistant, or an executive assistant, whatever you call that person. Team members that help with answering the phone, scheduling, maybe follow up on emails. There are virtual assistant services that you can hire for that exact purpose.

On the extreme, and I’m not necessarily suggesting this would be appropriate or easy to implement in our industry, but there are solution providers that have overseas people that are very low cost. They can do a lot of basic administrative tasks for you at a very low cost. That’s out there, that’s available. There are also providers here in the U.S.

There are solution providers that have a whole team of trained professionals, and there are individual providers that cater to just a few clients total.

This is entirely possible to outsource. Answering the phones, following up on emails, scheduling, those sorts of things, you absolutely can outsource that. That’s available now.

Next, along the same human capital theme, is if you do a lot of financial planning and need paraplanning, there are providers you can outsource paraplanning to.

This comes in different flavors. In some capacities, you are essentially paying for maybe 20% of a paraplanner. 20% of their time is spent on whatever you need them to do from a paraplanning perspective.

Other models are set up where it’s essentially paraplanning on demand. They’ll compile the financial plan for you, the deliverable for you, and you only pay them on an as-needed basis, an as-project basis.

These are typically all CFP-trained folks that are providing the service. It is very doable to outsource the planning function.

I’m not suggesting you outsource the delivery and explanation to the client. That’s where you come in, the human element, the client interaction. But as far as compiling the financial plan, updating the financial plan, creating the deliverable, there are virtual paraplanner solution providers in the marketplace you can outsource that to if you want.

The next item, and this is a pretty typical thing that a lot of RIAs already do, is outsource the management of the client assets.

For some of you, your value proposition is doing the asset management yourself. You might also do financial planning or other sort of advice and consulting for clients, you also are doing the asset management yourself. That’s part of your value proposition.

There are a lot of advisors, however, that choose to say, “That’s not where my main passion lies, or what my capacity enables me to do, or I just simply don’t want to do it myself.” You outsource it. That’s nothing new.

There are many solutions in the marketplace, for decades now, to outsource asset management. That’s things like SMA managers, model marketplaces, TAMP solutions.

I’ve done an episode on TAMPs. Careful, as I always say, there’s different flavors of TAMPs. You need to be careful how that word is used. Check out that episode. But you absolutely can outsource the asset management of client assets. You do not need to be doing that yourself. That’s a way to get that off your plate as well.

Along that same theme, there are some “TAMP solutions” – again, careful when you hear that word or how it’s used – who are essentially a single manager TAMP solution. They are not a platform that gives you access to dozens or hundreds of managers. They are the manager themselves. They are providing that turnkey asset management program, but they take it even a step further.

Their team members are responsible for tasks like opening accounts, processing money movement requests, etc.  Not only are they doing the asset management, they are doing a lot of the operational/administrative parts of opening and maintaining accounts as well.

So, to the degree you want to get those tasks off your plate as well, you absolutely can do that. Typically, that’s bundled up with a single manager TAMP provider. For competitive reasons, some of them now go well beyond just the managing of the assets. They’ll help with operational/administrative tasks as well.

Staying further on the TAMP theme, let’s say you use one of the TAMP platforms that provides dozens or hundreds of managers or models to choose from.

You’ve decided to outsource the asset management, but you still must determine which manager or model to use with which clients.  Guess what? You can outsource that as well if you want.

There are outsourced CIO (“OCIO”) services that will perform that function for you. They’ll help you determine both which managers/models to be using to begin with, and then which manager/model to use with a specific client. You can outsource that as well. Again, OCIO, outsourced chief investment officer solutions, those exist as well now in the marketplace.

The point is, from an asset management standpoint, whether it’s the actual managing the assets, it’s selecting which managers or models to use, it’s opening the accounts, etc., it can all be outsourced.

Again, the objective here, the hypothetical objective, we’re saying, “How much can we get off our plate so that we, as the advisor, the only thing we’re essentially doing is having that interaction with the client?”

Moving on from asset management, next up is the compliance of your RIA.

I’ve done several episodes on how this works in the RIA space. But in short, if you have your own RIA, you are responsible for the compliance of it. There is an entire ecosystem available to support you in that regard.

It is not anything that should cause you concern that you won’t be able to manage it yourself. It’s more a question of, how much support do you want with managing it?

Do you want a light support touch? Or, per the topic of this episode, could you essentially fully outsource the compliance as well?

Yes, there are OCCO, outsourced chief compliance officer solutions. I did an episode on the outsourced chief compliance officer concept, if you want to check that out.

From a compliance perspective, not only can you get support to help you manage the compliance that every RIA is responsible for, to the degree you want to, you can fully outsource that to a solution provider that does 100% of it for you.

There’s some interaction. They might need some information from you or feedback. But the day-to-day tasks you can take off your plate by outsourcing the compliance.

Next up is your marketing.

I’ll keep this one brief because there are many solution providers to help you with your website, your content marketing, whatever it is you want to do with your marketing approach.

All this of course costs money, which I’m not naïve to. I’ll finish up on commenting on that. But the idea is, if you want to outsource your marketing, whether it’s lead generation, content marketing, social media, website creation and maintenance, you can outsource all of it if you desire to.

How effective any one solution will be for you is still to be determined, but the idea is, there are plenty of solution providers you can work with that could be a fit and could deliver the results you’re looking for. Again, though, everything costs money, but the choice is there if you want it.

Related to marketing, to give you an example of how hands-off you can be, if you wanted to, is podcasting. There are podcasting platforms where, I call it the rock star treatment, they literally do everything except for you talking into a microphone.

They schedule the recordings. Maybe two episodes a month or one episode a month, whatever it is, it’s all scheduled out. There’s certain time that you log into Zoom, you have your microphone, they’ve got everything set up to record. They take care of everything. All you do is show up, and the proverbial walk to the microphone like a rock star.

You say your thing. When you’re done, you get off the Zoom. They handle everything after that. They handle editing, publishing it to podcast platforms, creating show notes, etc.  All you must do is show up, talk in a microphone, and you’re done.

So, just an example from a marketing approach on what you can outsource.

Moving along, the tech stack. A big part of having your own RIA is building and managing the tech stack.

I’ve done an episode on tech stacks, if you want to take a look at that.

There are supported independence platforms that provide the tech stack for you.  But if you wanted to do it yourself, again, we’re trying to get everything off your plate, you can.

There are consultants that will help you with the initial design, build-out, and integration of a tech stack, and also help monitor it on a going-forward basis, making sure you’re using it in the most efficient way possible. Make sure you understand all the bells and whistles of the CRM, etc.

There are consulting solutions that you can outsource this to.

Related to technology, a common need of RIAs is to have some sort of tech support solution.

This is things like how to make your email secure, or what to do if the printer stops working. Who do you turn to for help?

There are solutions commonly referred to as “managed IT solution providers.”  They help make sure you’re protected from cyber security issues, setting up and maintaining your email, if a tech issue arises and you need the proverbial tech support hotline to call, they provide all that for you.

This is a typical function that RIAs outsource. There is a lot you must get right. A managed IT solution provider is a way to outsource your tech support needs. It’s one less thing on your plate to have to handle yourself.

The last item I’ll mention – again, this is not an exhaustive list – is as a business owner, how will you manage the bookkeeping of your business? The accounting, the taxes.

There are partial CFO services, outsourced CFO services that cater to this industry that will do all of it for you.

Everything from updating the P&L, running accounts payable, accounts receivable, providing you with monthly income statements, balance sheet statements, all those sorts of things. And by the way, come tax time, all the things that need to be prepared and sent off to your CPA, they’ll do that as well.

These are often referred to as partial CFO services, or outsourced CFO services. You can outsource all of that as well and not have it on your plate.

The idea here is to go into this with a blank slate. If you are considering transitioning into the RIA model, ask yourself, what am I passionate about?

What do I, not only not mind doing, but I find passion in doing myself? And the things I’m not as passionate about, or I don’t have the capacity to do, how could I outsource?

Hopefully this episode has been a good example of how you can outsource a lot more than you likely think you can outsource.

Now, with that said, there’s a couple of caveats, a couple of flaws in this master plan I’ve just gone through explaining.

First, all these things cost money. Nothing is free. You can outsource practically everything that’s not client-facing, but it comes with a cost.

Your calculus should be, “If I do it myself, there’s still a cost. There might be hard costs involved and there’s certainly intangible cost if me or someone on my team has to do it directly.”

If you outsource it, don’t think of the cost of the outsourcing solution as paying 100 cents on the dollar, because doing it yourself would cost some amount as well.

You want to consider the incremental increase over trying to do it yourself. Is it worth it to outsource instead?

Again, concentrate more on what are you passionate about, and what are you not passionate about doing. Take the things you’re not passionate about doing and consider whether you should outsource it.

The other caveat is that, even if possible, outsourcing certain tasks can be harder than others.

For example, as I mentioned, you can outsource an executive assistant type role. However, if you have a physical office presence – which by the way, some RIAs are virtual and entirely remote, they’re essentially outsourcing an office too.

But if you have an office, there are a lot of folks that would say, “I don’t mind outsourcing the little things like scheduling and whatnot. But I want a friendly face there when the client walks in the door to welcome them in, to sit them down, to get the meeting coordinated and started.”

You can’t outsource a friendly face that is physically there. I’m not naïve to the fact that there’s things on a human level that can be very important to running a practice. But the amount of team members you need to run a practice might be less than you think, if you choose to be aggressive with what you outsource.

So, I did want to just end on that with an acknowledgment that this master plan I’ve just described – outsourcing almost everything – in theory is possible, but does have trade-offs. But this has hopefully got you at least thinking about what is possible.

Maybe you don’t take it to this extreme, but maybe you take away some of these nuggets and say, “Maybe that’s something I could or should be doing with my practice if I transition into the RIA model.”

Like I said at the top, my name is Brad Wales with Transition To RIA. This type of topic is what I help advisors with. Where are you now, does it make sense for you to transition to the RIA model, and what are the available pathways into the model?

If you conclude that starting your own RIA and going with a do-it-yourself approach is best, then how do you solve for each of the needed variables? Should you do a lot of it in-house? Should you outsource? A combination?

That’s the sort of thing I help advisers with all day long. I’m happy to have that conversation with you as well.

If you head to TransitionToRIA.com, you can find all the resources I make available. This series in video format, podcast format, the articles, the whitepapers.

At the top of every page is a contact link. Click on that, you can instantly and easily schedule time to have a one-on-one conversation with me. Whether you want to talk about today’s topic or anything else RIA related. I’m happy to have that conversation with you.

Again, TransitionToRIA.com.

With that, I hope you found value in today’s episode, and I’ll see you on the next one.

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