Q54 – 10 Questions On The Future Of The RIA Model With Bob Veres

Also available as podcast (Episode #54)

Apple  |  Android  |  Spotify  |  Amazon  |  Stitcher

10 Questions On The Future Of The RIA Model With Bob Veres

In a departure from my normal single-question-per-episode format, on this episode I am joined by long time industry observer, Bob Verses.  I challenge Bob to 10 questions on the future of the Registered Investment Advisor (“RIA”) model:

  1. If you were standing in the front of a room of wirehouse advisors and one of them stood up and asked you what you thought of the RIA model, what would you say to them?
  2. What will be a pretty normal thing in the RIA model 10 years from now that either does not exist, or is not widespread today?
  3. If you were starting your own RIA, what would it look like?
  4. Do you think the prediction of national or super-regional RIA firms will bear out, and is it a good thing if it does?
  5. With these big firms, is there still room for smaller firms?
  6. What advice would you give college students who will be graduating soon and looking to enter our industry?
  7. Who is the RIA model not a good fit for?
  8. Over the coming years which affiliation channel is going to be most challenged by this transition to more independent models?
  9. Imagine you are king for the day and you can wave your wand and change one thing about our industry and you don’t have to worry about regulators or lobbyists or politicians or anything like that, there’s one thing you get to change, what is it?

(Note:  There are only 9 questions noted above as Bob ended up answering one of the questions during part of a previous answer.)

Show Notes:

Bob Veres website:  BobVeres.com

Inside Information Newsletter:  Subscribe

Conference:  Insider’s Forum

Email:  [email protected]

Found This Video Helpful?

Want to learn even more by better understanding what a transition to the RIA model might look like for your own practice?  I encourage you to schedule a Discovery call, and I’d be happy to begin that conversation with you.

Full Transcript:

Brad: Ten RIA questions with Bob Veres, that is today’s topic on the Transition To RIA question and answer series. It is episode #54.

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.

On today’s episode, I’m very excited because we’re going to take a little bit of a change in format from the 50-plus episodes I’ve done so far, and I’ll explain what I mean by that.

For those of you watching on video, you can see, special guest today, Bob Veres. Bob, thank you for joining.

Bob: Well, thank you. Thanks for having me.

Brad: This is going to be a fun episode. It’s going to be a slightly different format. What I mean by that is all my episodes so far have addressed a single macro question and we’ve dove into details.

For those of you that know Bob, and I’m going to ask him to give a background on himself and his firm, he is an absolute thought leader in the industry, encyclopedia of our industry.

I reached out to Bob and I said, “I’d love to have you on to throw 10 RIA-related questions at you to get your perspective, and for all the listeners to learn from.

Full disclosure, I gave him two questions as examples but, beyond that, I said… “Bob, I don’t want to give you the other questions because I want to throw them at you and get the real take.”

To show the entertainment to follow, if you will, Bob’s original response back to me, when I threw that out there, involved an analogy of referring to a Cold-War-era Russian general. So, if that’s any indication of where we’re going to cover territory in our questions and answers, I think it’s a good sign.

Bob, with that, before we jump into the questions, if you could give us, for those that don’t already know who you are and your firm, if you could give us a background on yourself and your firm, that would be great.

Bob: Sure. Well, I have been observing the profession as a writer and journalist for almost 40 years. I started in 1982 as editor of “Financial Planning Magazine,” did that for 10 years.

I was a columnist for almost literally all the magazines that are out there, at various times. I think the reason I went from magazine to magazine is they kind of got tired of me. I tend to be kind of opinionated.

I publish and I write for “Advisor Perspectives,” as you do, and I publish a newsletter for financial planners. And it’s probably not most of your audience. Most of the people that I write for or who gravitate to my newsletter, called “Inside Information,” are fee-only fiduciary financial planners (already) who are committed to making their lives, professional lives, better. And, you know, there aren’t that many people in this business who think and read. And, so, my audience is almost all the financial planners, established financial players, who think and read.

And, unfortunately, that’s not the majority of them, as I said, it’s kind of a small minority. But for them it’s an unfair advantage. They have a better perspective on how they can change, what they can do, what’s new, what other people are doing. And the idea being that if you’re open to change, then you need information on how to do it.

Brad: Indeed. To give a full plug, I know you humbly wouldn’t do it yourself, but your “Inside Information” newsletter, if I’m correct, it’s the longest running practice management newsletter in existence. How long have you been doing it now?

Bob: Since 1990. And it’s not just practice management. There’s marketing in there, there’s investments, there’s technical content sometimes, you know, if something interesting shows up or tax law changes. It’s pretty much anything an advisor would want to know. But yes, it’s been around for quite a long time.

Brad: 1990, I would say so. I’ll include in the show notes links to Bob’s website and his newsletter and information.

You also are known for your Insider’s Forum conference that you put on. I saw Michael Kitces just put it on his recent list of must attend conferences for the coming year. Did you want to give a quick background on what that conference is, what the kind of profile of advisor that would be attracted to that conference?

Bob: We have a target market. Most conferences, you know, “Please come,” you know, “if you can fog a mirror, if you’re not,” you know, “lying in a coffin somewhere, we want to have you.” Our target market is advisors who have outgrown the traditional conference experience.

If somebody has gone to, say, the FPA National Conference and they walk out of a session and say, “I could’ve presented that better than that person,” and if they’re right, then they’re appropriate for our conference. We don’t dumb anything down. We dumb things up, if that makes sense.

Brad: Indeed. I think it tilts more towards larger advisors and teams as well. Is that a fair statement or is it a pretty broad mix?

Bob: It’s a broad mix. There are some great advisors who only have a two or three-person shop. Then there are firms that are just killing it with billions of dollars under management. They’re looking for, “Is my revenue model appropriate? Who can tell me how better to manage my staff?” The people-management side of things is becoming extremely important now, and in recruiting.

There are all sorts of issues that really need to be addressed at a high level that most people don’t really get much information about.

Brad: We’ll include that in the show notes as well so you can get information. It’s late in the year here, so, the 2021 conference has already happened but I’m sure you’re already planning out for the 2022 conference.

And then the final thing before I jump into the first question, Bob, on a personal front, I wanted to express my appreciation. Bob was very supportive of me when I first launched my firm. At the time, early on, it was essentially just a vision and an idea. And oftentimes you have to prove yourself not just with what you say you’re going to do.

I appreciate you taking interest in what I’m doing and being supportive from the very beginning. And I know you’ve supported me along the way. So, thank you very much for that. I’m happy to report things are working out quite well and as I mapped things out, but it was no doubt in large part to support from folks like you early on. So, thank you for that.

Bob: I’m going to add that it was a no-brainer. Almost literally everybody who’s giving advice on making what’s really a very difficult transition from one model to another model has an agenda.

You go to Fidelity and they bring a team in. And, of course, the most important thing you can do is switch over to Fidelity. You talk to the brokerage firms about switching models or you go to an independent BD or something and they have their own agenda. And then you’ve got the recruiters who have certain companies that pay them to do this.

When you came along, it was one of the very rare examples of impartial advice on something that I think is one of the more important pieces of information out there. One of the more important areas to address in the profession overall, the migration, if appropriate, from the brokerage and W-2 model to the independent model.

Brad: Thank you for seeing that vision, as I did, and being supportive. I hope to keep reporting back to you that it continues to go well. So, again, thank you on that front.

So, to dive right in, the first two questions Bob had ahead of time and then we’ll dive into the unknowns.

The first one is…

If you were standing magically up in the front of a room of wirehouse advisors and one of them stood up and asked you what you thought of the RIA model, what would you say to them?

Bob: Well, you know, you’ve got to contrast it. Right? You’re in one world and that world, they wrap you in cotton, they try and make you as cozy as possible. They take as much money out of your pocket as they possibly can without you leaving. And, so, you have to recognize that you’re not really on the same side of the table as your employer in that case because what they’re trying to do is maximize how much they can make off of what you and your clients are investing and what you’re doing.

If you recognize that, then you can do an objective assessment of, “All right, is it worth?” – and you’ve written articles about this – “is it worth what I’m paying that company for the things I’m getting? And is it worth the intangibles?”

You know, if you go out on your own, if you’re an independent RIA, you can talk to your clients like an adult. You can talk to the press. There are certain compliance issues that don’t really relate to you anymore because you’re not considered to be selling.

I talk to brokers who are really not selling. They’re really not in the business of selling, they’re really focused on their clients. And they tell me proudly that they’re ignoring their branch manager or they’re ignoring the home office, you know, incentives that are thrown their way and they’re still doing it the right way.

And I beg them, I say, “Would you please go independent because I’d really like to say that all wirehouse reps, brokers, advisors are dirt bags. And, as long as you’re in that system, I can’t say that with a straight face because there are people like you.”

So, what I would say is, if you’re focused on your clients and if you’re wanting to be able to talk to your clients like an adult and if you have done an assessment of what you’re paying the brokerage firm and you think you can do better on your own – and most people can, as you and I know – then it makes sense to make that transition carefully.

What do I mean by “carefully?” Well, you need some guidance, you need to know what the problems are. But it’s a lot easier than you think.

That’s probably the most important thing I would tell them is that it’s not such a big transition, it’s not that difficult. You’ve got to set up an office and you’ve got to set up your website and things like that but there are outside vendors who can mostly help you do that.

And, of course, whoever you affiliate with, be it an independent broker-dealer or one of the custodians, they’ll give you a lot of help and maybe even some financing on it.

Brad: Indeed. I tell folks, what I help them with and guide them on, it’s not rocket science. But until and if you’ve ever dipped a toe into that to learn how to do all those steps, why would you necessarily know how to?

It’s a matter of, as you said, going through the motions of figuring out the things involved with making the change. So very much doable but certainly an unknown for a lot of people until they get a chance to actually, peek over the fence, as they say.

Bob: Well, and the other piece of it, the last piece of it, there’s a lot of uncertainty about, “Are people going to really hire me if I’m just me?” And the most interesting thing that most people discover when they go independent is their clients hired them. They didn’t hire a brokerage firm, they hired them personally and they built their own brand, whether they knew it or not.

If they go independent, they just need to leverage that brand, which is them.

Brad: The challenge is those folks have been hearing the little voices in the corner office telling them that that’s not the case, and that it is the (brokerage) brand that is everything. And, so, it’s a matter of resetting your perspective on that.

And you’re absolutely correct, the clients generally always have the affinity to the advisor, not the firm, at the end of the day. It certainly makes a difference.

All right, next question.

I want you to gaze into your crystal ball and tell us what will be a pretty normal thing in the RIA model 10 years from now that either does not exist, or is not widespread today?

Bob: I have a co-author, his name is Matthew Jackson, and we both wrote a whitepaper on the advisory firm of the future. We talked to 12 consultants who consult with RIA firms on a regular basis, who are thought leaders and we spent 2 hours with each of them talking over what they see coming and what they expect.

The whitepaper is just a bare-bones version of what they told us. So, I wrote a four-part series on the different components of that firm of the future.

If you’re starting your firm now, you have a huge advantage over firms that have to pivot. I feel really sorry for some of these mega firms because they’re going to have to turn a battleship and it’s going to be in many cases, a 180-degree turn.

I haven’t answered your question yet and I apologize for that, I just want to set the stage.

The single most important change that has happened in the last few years, and it was really brought about by COVID, was advisors and their clients are now comfortable talking like you and I are talking right now, on Zoom. The broader implications of that are that location is now no longer a key factor in your marketing.

You can now market to anybody anywhere in the country, on the other side of the Mississippi, you can market to somebody on the Moon, if there’s somebody up there, you can extend into Europe, if you want. And that means that everybody else is now going to be competing in your backyard. Every other advisory firm is competing with you anywhere in the country and you’re competing with them.

So, how do you address that? Well, you can be the cheapest advisor on the market and everybody can do a race to zero till finally you’re giving your services away and begging people to work with you and going broke. And that’s not really the model that we recommend.

The model that we recommend, the service model of the future is you find – some call it “a niche”, but we call it a “specialty” – you find a group of people who have something in common, from a business standpoint, and you learn everything about them. And, as you learn everything about them, you create a much deeper, better, more profound service that’ll help them in their particular challenges, which a generalist won’t address.

The example we use on our whitepaper is a company called Dentist Advisors. I think they’re out of Denver.

Suppose you’re coming out of dental school right now and you’ve got cash flow, or you’re going to have cash flow, you’re trying to figure out, “Should I affiliate with a dentist’s office and become their successor? Should I specialize, should I become an oral surgeon? What are the challenges there?” How would I go about it and what kind of financing would I need if I start my own office? And what do I need in that office?”

You’ve got a whole bunch of questions. I don’t even know what they all are. But Dentist Advisors knows extremely well what they all are.

So, I’m coming out of dental school, I’m looking for an advisor who can help me. And it just so happens I live right next door to somebody who provides comprehensive financial planning on a fee basis. And I also happen to notice that there’s a company called Dentist Advisors, which is way out there in Denver, that specializes in exactly the services I need. Who am I going to choose?

And, so, what we see is, eventually, there’s going to be a cadre of advisory firms that specialize in particular kinds of clients and they’re going to be cross-referring to each other.

I work with people who are partners in law firms and I understand their challenges and I understand what the partnership revenues are and how that works and how to negotiate and everything. A dentist shows up at my door and says, “I’d like you to help me.” And I say, “I’m not exactly the right person to help you but I know this firm in Denver and I’m going to send you to them.”

And at the firm in Denver, a lawyer walks into their office and says “I’m on the partnership track.” And, so, suddenly, you’re going to have maybe 100, maybe 200 firms that are cross-referring to each other and creating much better value for their clients.

That’s when people will pay for advice. You won’t have to charge AUM anymore, they’re going to pay directly for this advice.

But people say, “People won’t pay for financial planning advice.” Well, they won’t pay for generic advice. They won’t pay for you to run a spreadsheet on them or do an e-money calculation, but they’ll pay if you’ll get them started or help them in their business life in deep and profound ways.

So, that’s one. And that’s a way to market nationally without having to compromise on your prices and, in fact, you’ll probably raise rates.

Brad: That blends into some of the other questions I have for you. I would not bet against you on that theme. I’m a big believer in the…whether we want to call it the niche approach, the differentiated approach.

I recently came across an advisor online and his sole niche, and his website is 100% dialed into it, is on tattoo artists. The challenges of starting your own shop and the cash flow and everything that comes with that. That’s a perfect example where, if you are a tattoo artist and you know the tattoo artist advisor is out there, that is probably who you are going to gravitate to.

Bob: Suppose you’re in one of the brokerage firms now and you’re thinking about going independent. You take a year to prepare. You pick a group of people, a niche or a specialty is what we call it, that you really like, that you really enjoy, that you have an affinity for.

You go to their conferences and you offer to do a poll, and do a write-up of the survey. You figure out what their challenges are, you hang out with them. You talk to them about maybe creating some kind of a virtual meeting with speakers of what have you. And then, when you go out on your own, you have your specialty. You can start right in on your specialty from day one.

That’s the way I would start a firm. I would take a year to research a specialty and then start a firm that, right from the start, addresses that specialty.

Brad: Well, we’ll jump right to that question because you’ve kind of answered it. One of the questions I had further down was….

If you were starting your own RIA, what would it be?

It sounds like you would pick a differentiated approach, a niche approach, and be across the country. Is that a fair way to sum it up?

Bob: Yes. But then you’ve got a number of other questions.

You could join a firm, an established RIA firm, and have your specialty and work within them and you wouldn’t have to create an office. But you’ve got some issues there. That becomes a little more complicated because you’re negotiating for some percentage of the firm with the clients you’re bringing in. And, if you’re not bringing in a lot of clients, then, you’ve got some issues with partnership track or you start your own firm.

But the biggest other question is, and you just wrote about it in “Advisor Perspectives,” how do I charge for this?

The dentist coming out of dental school does not have a million-dollar retirement fund that will pay assets under management. And, so, you’ve got to have a flexible fee structure. You can’t just charge AUM for everybody within your specialty because not everybody in your specialty is going to be a pre-retiree, which is basically where the money is.

I did a survey on fees, as you know, and I asked advisory firms what they do and how they do it.

Only about 35% of firms are exclusively AUM now. Now, that means that they’re experimenting mostly, they’re mostly AUM but they’re experimenting with other fee structures. Hourly, or the one that’s predominant is the quarterly retainer fees. They don’t call them “retainer fees,” they call them “quarterly fees”.

But you can’t charge AUM if you’re working in a specialty. You’ve got to charge something else that pays you for the services you’re providing directly.

And I think, eventually, the profession is going to be hourly. Every other profession has gone to hourly, and financial planning is kind of early in the process. I think they’re going to eventually have to migrate that way.

Brad: The thing for folks that are listening to keep in mind, that are not yet in the RIA model, is that RIAs, within some constraints, generally can do a lot of everything Bob just described. Whether retainers, or hourly or different pricing structures. You have that flexibility. There’s certain processes and disclosures you have to put in place, but it is doable.

The challenge is, if you’re at a (for example) large broker-dealer firm and they have a very narrow way that you’re allowed to price your services, you are in competition with advisors that have significantly more flexibility in how to price this.

As Bob’s prediction plays out over the coming years, those folks are going to have an edge in how they can put together a service offering for clients. I know it’s self-serving for me to always point out the benefits of the RIA model, but that is certainly one of them.

Bob: It’s interesting too because I think they’re going to have an advantage over these mega firms, these mega RIA firms, with $10 billion under management and they’re acquiring a whole bunch of retiring advisors.

They’re all charging AUM and they’re pretty fixed on telling their advisors, just like a brokerage firm does, “Here’s how we do things.” I don’t want to be told, “Here’s how you’re going to do things,” and we’ve already determined that. I want to have the freedom to give the best advice I can the best way I can and charge the best way I can.

Brad: You would’ve thought I gave them to you ahead of time because you just walked me into the next question.

Thinking of the mega firms, there is the prediction out there that there will eventually be maybe a half dozen national mega firms or some people say there’ll be “super-regional” RIA firms, that are household names.

Do you think the prediction of national or super-regional RIA firms will bear out, and is that a good thing if it does?

Bob: There’s two answers to your question.

The first answer is I’ve actually presented on this. I debated years ago Mark Hurley – most people don’t know who he is – but he predicted that the entire profession would gravitate toward a small handful of large firms and everybody else would be like mice scurrying under their feet.

We did two debates. And, unfortunately, it turns out Mark was not the best debater in the world, so, it wasn’t really a fair debate.

But I did some research (which I presented at the ICPA meeting also), if you look at the accounting profession and the law profession – which are two professions that have been around longer than financial planning and are further along in their evolution – what you find is a small number of very large CPA firms, and then maybe a dozen regional firms, and then there are firms that dominate in particular cities, and that might be as many as 100 or 150.

It’s the same thing with the legal profession. You’ve got three or four really large national firms, you have firms that have a regional dominance, and then firms that are ultra-competitive within their cities.

The interesting thing is both professions, at least 70% and closer to 80% of the lawyers, of the accountants, are with very small firms.

And you know how that works. You’re on a partner track, or you’re hoping to be on a partner track with a law firm, and, for some reason, you’re just not willing to go through all the crap that that requires. Or maybe you discover that you’re not making the progress you think you will, and, so, you go out and start your own firm. Same thing with accountants.

There’s a lot of recruiting at the big firms and then people leave the big firms and start their own firms. And some of those firms become big and then the cycle begins again. There’s a lot of shedding going on, and I don’t see any reason why financial planning can’t be the same thing.

There are going to be mega firms and there are going to be large regional firms, there are going to be city firms. The center of gravity is going to be small firms that are evolving. Some of them into large firms and some of them not, and that just seems to be the way a profession works.

But the other aspect of the question – I said there were 2 answers – the 12 thought-leading consultants…and understand, most of them make most of their money with the large firms because the large firms have money to pay them.

All of them said, “We don’t think those large firms represent the future.” What they’re doing is they’re reproducing the brokerage firm model in a fee-only structure. They’re creating basically a bureaucracy, they’re creating independent offices around the country, they’re standardizing what they do. Their advisors are on a W-2 model and they’re charging AUM. They’ll take anybody who fogs a mirror, as long as they can pay AUM. And that doesn’t seem, to any of the consultants we talk to, to be the model of the future.

Brad: That’s interesting. That’s what the consultants – that are hired by a lot of those folks – are saying.

I have seen some of the larger firms that themselves are trying to pick a (differentiated) lane and stay in it, whether it’s an investment philosophy or who they cater to. I think that will be more and more necessary for the same reasons, to differentiate and to stand for something.

We’ll see if the term “breakaway” becomes a common phrase used with folks leaving RIAs as well, but I am seeing that. When I started my business, I didn’t necessarily expect to see it as often, but there are advisors who feel either they’ve outgrown the RIA or they feel the RIA has outgrown them. It’s not their RIA, they’re a part of someone else’s, and they are “breaking away” now to start their own. So, my experience certainly mirrors what you just explained, for sure.

Related, my next question was to ask you…

With these big firms, is there still room for the small firm out there?

I think we’ve answered that already, but I’ll throw it out there. For a firm under, say, $100 million, where the economics get a little more challenged. I could guess what your answer will be, based on your previous responses, but would love your take, is there a place for those folks going forward in light of this enormous competition they have out there?

Bob: Well, I think, for one thing, we’re not really going to measure firms by AUM eventually. I think we’re going to measure firms by their gross revenues per year. And, so, you know, what you’re talking about is a firm that maybe is taking in $200,000 a year, it will be considered a small RIA. And would that be a viable firm?

I’m going to say that that’s not a firm that’s going to survive generationally. What I’m seeing is a lot of advisory firms, and this is kind of straying a little bit from your question, but when I was starting out in this business, in 1982, which, you know, we used to chisel financial plans on stone tablets back then.

Brad: You keep the plans short when you have to chisel them, right!

Bob: Yeah!

It was a different model back then. The people who I grew up with were the pioneers, the rebels. They were creating a whole different way of operating. The brokerage firms back then were very much the enemy. It was a really heady time for innovation and for figuring out new models and new ways of doing things.

Now all the people who look like me – you might have noticed I have some gray hair on me – they’re now the people who are retarding progress. The next generation are coming to them and saying, “Here’s what we want to do with the firm. We think this is where we need to go.” And the guy who looks like me says, “You know, when I retire, in 20 years, I think we can consider that model.”

I’m ashamed to say that the people who look like me, who I grew up with, who were the pioneers, are now the retardants of progress, if you will.

I’m going to broaden the question a little bit, those small firms, the successor is going to the advisor and saying, “Here’s the firm I want to inherit. Here’s the firm I want this firm to become when I’m running it. And it’s going to have to grow, it’s going to have to evolve, we’re going to have to invest in it, we’re going to have to bring in more people.”

The firms that are willing to listen to that next generation – be it, the $200,000 revenue firm or $10 million revenue firm – those are the firms that are going to succeed. So, it’s not really necessarily size, it’s more ossification.

What we see in the future, what we suggest, and one of the questions we ask is, “What size firm is the advisory firm of the future going to be? What size does it have to be?

The firms that are going to be succeeding multi-generationally are eventually going to have to be multi-partner, they’re going to have to have a full-time CEO or COO who’s the operating person, and they’re going to have to have systems and procedures internally that make it easy for them to deliver a really deep service model for their clients. Those are the characteristics.

Now, you can do that with a two-partner firm that’s highly leveraged by technology. You can do that with a 100-partner firm, that has a lot of staff leverage. But the characteristics are not necessarily size, they’re more a willingness to evolve and a willingness to create something sustainable.

Some firms are sustainable, and I would argue some of the big firms are not. I would argue…you know, dinosaurs were not sustainable, they couldn’t react to the climate change. We’re going to go through a radical climate change in the next 5-10 years, and I’m wondering if some of those firms will be able to pivot fast enough.

Brad: It should all be a good thing for investors because that means there’s going to be new approaches, new models that the investors will gravitate to for what works best for them. As long as there’s demand, I think there will be folks looking to fill that. So, that should be a good takeaway.

My next question is related to the younger generation, and relates to something that I think is a good sign for the industry.

It’s not by any means my main market, but it is encouraging to see, I occasionally have college students reach out to me that are in a financial planning program. They can even now graduate with all the coursework of a CFP. They’re wanting to already learn more about the RIA before model they even graduate college, which I think is great. I try to provide resources for them.

In light of some of the things you’ve mentioned…

What advice would you give college students who will be graduating soon and looking to enter our industry?

Bob: The advice used to be, “Go work for a brokerage firm for a couple of years, get trained, and then leave.” That is not my advice now.

As you know, there’s a huge shortage of talent. Any of the people in the brokerage world and anybody who comes out of college will find a welcoming environment. People really want and need talent these days. And, so, you’re kind of in a seller’s market, I’m not sure which way, you’re a buyer or a seller, you’re in a good market when you come out.

You need to go into a firm that has a commitment to developing the talent they have. In other words, a firm that is capable of and willing to enhance your career. That’s not every firm.

I just wrote a profile on, and we had somebody speak at our conference, about how they have a staff-first culture. Everybody says, “Client-first,” you know, “put the clients’ interests ahead of everybody else.”

This firm’s argument is, “No, we put the staff’s considerations ahead of everybody else because the staff is what creates the client service.” They break out as many as five, six, seven hours a week for training, for internal training, for internal discussions and mentorship.

Then you have firms that are hiring you and they tell you, “All right, you’re going to work in operations for a couple of years and shuffle papers around and work your way up the ladder, and then you’re going to be an associate advisor for a while and supporting an advisor, and then you’re going to be in it.” It might be 10 years before you’re sitting in front of a client.

I want to be sitting in front of a client within a year with the support of a senior advisor. That’s a question I would ask, “How long does it typically take for somebody like me to be in the room, in a client meeting, having meaningful conversations with that client, perhaps or perhaps not with the supervision of somebody senior? I want to develop those skills and I want to do it quickly. And the only way I can do it is to do it,” and, “are you willing to live with me if I make some mistakes when I do it?”

Brad: I think that’s great advice. Having the confidence to demand that or ask for that I think is the key. Hopefully, folks that are in that situation that are listening now, I think that will give them the motivation to realize there is a path where you can achieve that. It’s a matter of finding it and saying, “Hey, I need this.”

The RIA itself might not realize that’s what the desire or expectation is. So, it doesn’t hurt to point it out to them because they might not realize that’s the preferred path anyway.

Bob: That said, the brokerage firms are very active in the campuses but, interestingly, so is Fidelity, so is Schwab, especially so is Vanguard.

I don’t know that those other avenues are going to get you as far as you need to go, as quickly as you need to go. I think an awful lot of average students who don’t really know what they want to do or how they want to do it are going to end up working on a W-2 basis for one of these firms.

Vanguard I think is the largest employer or hirer right now (of new financial planning related grads). I hate to say this but when you work for Vanguard as a financial advisor, you’re basically a mutual fund salesperson. You’re recommending one particular – they’re good funds, a good company – but I don’t think that’s real financial planning.

Brad: Yeah, they’re hiring CFPs to do that role. That’s good advice, certainly good consideration because those opportunities are out there, whether it’s the best fit or not.

Related to fit, I want to go back to the more tenured advisors. We’ll think of someone at a wirehouse firm.

I’m a big believer in being a straight shooter with anyone I talk to. I don’t have rose-colored glasses on. While there’s significant advantages to the RIA model, it is not for everyone. I am a believer you should give both sides of the coin.

From your experience, again, we’re thinking of tenured advisors maybe in a traditional W-2 model….

Who is the RIA model not a good fit for in your eyes?

Bob: I think it’s a bad approach to be a straight shooter. I wouldn’t do it myself. (sarcasm)

You and I are both in the same business. Fundamentally, what we’re trying to do is help people change when really every instinct tells them they don’t want to change. Most people resist making transitions, resist crossing boundaries. They’re comfortable where they are. And that comfortableness is always inevitably holding them back from something better.

The more you settle into a comfort level, the less likely you are to make a change for the better. Those changes for the better are uncomfortable, they’re difficult, they require a lot more work.

I have done consulting in the past and have talked to people, and, inevitably, I’ll talk to people who say, “You know what? I don’t really see the grass being that much greener over there, that it’s worth jumping over this fence.”

I’ll say, “But it’s a little fence, it’s not a high fence,” and they’ll say, “Yeah, but I’m going to have to walk all the way over to that damn fence and then I’m going to have to climb over it and then I’m going to have to eat the grass that maybe it’s a little greener over there but it’s not that much greener.” There are people who really are not comfortable with change. They’re really not.

The fact that they’re comfortable where they are and the fact that they feel like they’re doing good work for the people that they’re working for. And maybe they’re not the best – I hate the word – “producer,” (that’s how the brokerage firm sees it) so the money that they’re paying the brokerage firm is roughly comparable to what they’re getting from the brokerage firm in terms of services.

It can be a complicated calculation when you calculate all the other things, all the other revenue sources for the broker, but, in general, they’re getting roughly what they’re paying for if you talk about subtracting the payout. Those people are not really going to thrive in the RIA marketplace.

That’s the question that I would ask, “Do you think you could thrive in the RIA marketplace?” Just being an average, adequate RIA, grousing about the fact that you had to do all this stuff and then you’re back in exactly the same position you were before, except maybe not being quite as well taken care of.

That person shouldn’t leave. That person is ideally suited for where they are. But the people who I tend to talk to, they’re like human rockets. They’re capable of bonding with anybody they talk to. They don’t market themselves, they just look for ways they can help other people. They find ways they can help other people, they bring in clients, they offer great services, and they’re paying way too much for the office they’re getting, for any support they’re getting.

And they’re being constrained when the compliance department says, “Hey, you can’t tell your clients that. That’s the truth, we don’t want any more of that out there.”

Anybody who feels uncomfortable under those constraints, and who feels like they’ve got a great career in front of them, they’re probably being held back by the brokerage model. The brokerage firm sees them as a resource for it, not them as a resource for themselves and their clients. That’s the distinction I draw anyway.

Brad: I’d agree with you. For some folks, the hard truth of it is it’s just not better for them to make a change and that they are possibly in the best situation they are in now.

I also say you need to understand both sides to know that that’s the case. Oftentimes, folks will determine that the grass is greener and the fence is low enough and it is worth the process to go through it. So, I think that’s helpful perspective, for sure.

Bob: One other thing you probably ought to consider is, is the wirehouse model going to survive the next 15 years? I won’t opine on that but I think that is a question that everybody should answer.

Brad: Well, let’s throw that one in there. Actually, it’s a variation of a question I planned to ask anyway…

Over the coming years which affiliation channel is going to be most challenged from this transition to more independent models? Which one’s going to struggle the most, in your opinion?

I think we know your answer but I would love to hear your perspective.

Bob: I’ve got a model for predicting the future. If you look at a waterfall, you see a lake on top of a plateau somewhere where water has been running into it from a stream. And then there’s a stream running out of that lake and it goes down a waterfall and it rushes down toward another pool.

And then, somewhere down the way, another stream rushes from it down into a bigger pool. Eventually, it runs into the ocean. And the ocean is hundreds of feet lower than that top pool.

When I talk to people who have left the brokerage model to work with independent RIA firms and I say to them, “What would you say if I held a gun to your head and said, ‘Either you go back to the brokerage model, brokerage world, or I’ll pull the trigger,'” they’d say, “Pull the trigger.”

And then when I talk to people who have gone fully independent, who are fee-only, who are working with one of the custodians, they’ve left the independent broker-dealer model, I ask them the same question, they say the same thing, they say, “Pull the trigger, I’m not going back.”

Water flows downhill and so do advisors flow from the brokerage firms to the independent broker-dealers to independent RIA models. I don’t see any water flowing uphill from the ocean in reverse. I don’t see advisors flowing back up into the brokerage model.

So, we know the direction of the future, we just don’t know the speed at which that’s going to move.

I have seen lately, and you probably have a much better finger on the pulse than I do, I’ve seen lately a lot of people questioning the brokerage model that they’re in and wondering what they can do better and holding off because of COVID.

They’re noticing that they’ve got a lot more opportunity with this Zoom meeting stuff, they’re noticing that the restrictions are becoming a little greater. Some of the brokerage firms are saying, “You’ve have to come back in the office,” even though they’re not comfortable doing it.

I think you’re going to see an accelerating trend. And when it accelerates, the way it works is somebody leaves and goes to a different model. And then, at the next Investments and Wealth Management Institute conference, their friends ask them, “How’s it going?” and they say, “It’s going great.” And then they think about leaving. And then their friends ask them.

I think there’s going to be an accelerating exodus of the best, most ambitious people from the brokerage model to the independent broker-dealer model or to the RIA model. And the same thing from the independent broker-dealer into the independent RIA model, I see that accelerating.

I’m not sure what the brokerage firms are going to do after the next major scandal, which I think is coming sooner or later. I don’t know what it’s going to be. But after a bunch of their best people have left, they’re going to be left with fewer people, not their best people, and an outmoded service and revenue model.

I’m wondering whether that’ll mean that they’ll have to take the whole thing fee-only, which I keep waiting for. The Merrill Lynch senior vice president says “You know what? I’ll pay you money, I want to take the entire field force, I’m going to make it the biggest independent RIA there is out there.”

I think, sooner or later, that’s going to happen. I think advisors who leave will get out early from under that and be better positioned for the future than the brokerage firms are right now. That’s my opinion.

Brad: I always point out how we use the term “independent broker-dealers,” but most of the larger “independent broker-dealers” have more than 50% of their assets now in fee-based accounts. So, arguably, they are independent RIAs that also happen to have a broker-dealer.

It’s interesting how that will continue to evolve but, ultimately, breaking away from that larger organization and having the additional flexibility of a smaller RIA model is certainly going to remain appealing for many folks.

Bob: And if you’re not selling, that whole FINRA compliance thing, it makes no sense for you. It’s constricting you without protecting anybody.

Brad: Yep, indeed!

Well, the last question, because there was one or two others but we ended up already answering them, they kind of morphed in. This last one is my favorite. Not to hype it up but I’m curious what your answer will be. It’s a hypothetical but I’d love to get your perspective.

Imagine you are king for the day and you can wave your wand and change one thing about our industry and you don’t have to worry about regulators or lobbyists or politicians or anything like that, there’s one thing you get to change, what is it?

Bob: I thought you were going to ask a hard question, that one’s an easy question.

Brad: I’m only giving you one, you have to narrow it down to one. So…

Bob: Well, narrowing it down might be hard but it’s not really that hard. I would get rid of sales incentives, which means commissions and, of course, all the other sales incentives.

I think the biggest conflict between advice and the consumer is the agenda of, “I need to sell something in order to get paid. I’m going to recommend an annuity because that’s how I get paid even though I could recommend a group of ETFs, which would accomplish roughly the same thing. I’m going to recommend the separately-managed account that my brokerage firm has incented me to recommend.”

Any commission, any other distraction to giving the very best advice that I could give to that client, any other incentive that somebody imposes between me and that advice I would get rid of.

The term fee-only is thrown out and fee-based is thrown out. I think the real issue is, whenever someone has an incentive to recommend something that might not be the very best thing to recommend, I think that’s a problem for the profession. I’d get rid of those and banish them.

And, so, you’re going to take away my scepter now, right, my crown?

Brad: I’m sure we could probably do, which would be intriguing, a whole episode on waving of the wand!

It’s interesting because you just answered if you could do it in a day, and I wouldn’t bet against you that it will come to fruition eventually. It just won’t be in a day, it could be a while. But the trends seem to be going in that direction, and we’ll see how close we one day get. I don’t know if we’ll get 100% but it’s a good thought.

Bob, thank you very much. This has been extraordinarily enlightening. You’re always a wealth of knowledge.

For folks that want to learn more about your newsletter, your conference, and your services, what’s the best way they can find you or get a hold of you?

Bob: The easiest way is to send me an email, [email protected].

I get messages from people, and their first line is, “Bob, you’re completely full of shit.” And the interesting thing is often, a disturbing number of times, they’re right. And, so, if I was full of shit with anything I’ve said, send me a message and tell me that.

Otherwise, you can express an interest in my service or interest in coming to our conference or whatever. But, the times I learned are the times when people say, “You said something, I disagree with it. It wasn’t right,” and, generally, their perspective is one I haven’t considered.

Brad: I appreciate that openness. We definitely do not want to be in our own echo chambers. We need to hear different perspectives. That’s in part why I wanted you on here. I can talk about this stuff for days on end and it’s always good to hear different perspectives, different takes on things.

I appreciate your time today. I appreciate all you do for the industry as a whole. I encourage people to reach out to Bob. We’ll have in the show notes the email address as well as his website, if you’re interested in the newsletter or conference.

Bob, with that, thank you very much for coming on today.

Bob: Thanks for having me.

Brad: Thank you everyone for tuning in to this episode. I hope you found lots of great information from Bob and all the questions we went over.

If you’re not already there, head on over to TransitionToRIA.com where I have my entire lineup of videos, podcasts, whitepapers, all kinds of information.

If you’d like to dive deeper into any of the topics discussed on today’s episode or any of my other episodes, on the top of every page of the website is a contact link, you can instantly and easily set a time to have a one-on-one conversation with me to talk about any of the topics on this episode or anything else RIA-related. I would be happy to have that conversation with you.

Head on over to TransitionToRIA.com and you can find all the resources I just mentioned. Thanks for tuning in.

Want To Learn More?

Schedule a Discovery call and lets begin a conversation.

Share this post

Read my free whitepaper!

Get instant access to my free whitepaper on "11 Ways The Economics Of The RIA Model Are Superior To Other Advisor Affiliation Options".
FREE WHITEPAPER:  “Steps To Take Now If You Anticipate Transitioning Your Practice To The RIA Model Anytime Within The Next 10 Years.”