Also available as podcast (Episode #75)

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What Are 13 Ways That Registered Investment Advisors Have An Unfair Advantage?

Imagine I challenged you to a one-on-one game of basketball. We each use the same equipment. The rules of basketball apply to both of us. The points per basket will be the same. One caveat: You must play with one arm tied behind your back. Sound fair? If such a scenario seems preposterous, consider if you’re currently a one-armed player as an advisor.  The Registered Investment Advisor (“RIA”) model provides financial advisors an advantage over advisors not in the model. In this episode I explain 13 of those advantages.

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Full Transcript:

What are 13 ways that Registered Investment Advisors (“RIAs”) have an unfair advantage? That is today’s question on the Transition To RIA question & answer series. It is question #75.

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, head to TransitiontoRIA.com, you can find all the resources I make available. I have this entire series in video format, podcast format. I have articles, I have whitepapers, all kinds of materials.

And as I mentioned podcast, if you’re watching this in video format and you prefer podcasts, search for the “Transition To RIA Podcast” on all major podcasting platforms, and you will find it.

Again, all resources at TransitiontoRIA.com.

Speaking of articles, I wrote one recently in an industry periodical, and it talked about some of the unfair advantages that the RIA model has over other affiliation models. I wanted to make an episode on the topic as well. I’m going to go over 13 examples of that.

An analogy I would use for this is imagine you are going to play a one-on-one basketball game against someone else. You both have the same equipment, same basketball rules, you’re on the court, all that stuff. However, you must voluntarily play with one hand tied behind your back. Your opponent does not.

Would that be a fair matchup? Would you have a chance against someone that can play with both hands? No, that’s not a fair matchup.

That analogy applies to how a lot of advisors compete in the marketplace against other advisors. That’s what we’re going to be talking about here is, are you the one-handed basketball player or are you able to play with two hands?

To extrapolate that further, we’re going to go over some of the resources that advisors in the RIA space have available to them, that advisors in other affiliation models often do not.

The challenge for you as an advisor, if you’re not in the RIA model, is you are competing in the marketplace against other advisors that are in the model. You are competing for clients, and working to retain clients, and you’re competing against advisors that potentially have an unfair advantage over you.  You are playing a one arm basketball game against your opponent.

They have an unfair advantage because of the way they have set up the practice and what they have available to them. I want to give some examples on today’s episode. These are in no particular order. I have 13 of them.

I’m going to present these as a tale of two advisors. One advisor can do something, the other advisor cannot do that thing. You’ll see how as we go through it.

#1 – One advisor can make a podcast to reach prospective clients; the other is not allowed to have a podcast.

The first one, one advisor can make a podcast to try to reach prospective clients with. If you are listening to this as a podcast and you are an advisor, you obviously understand the value of podcasts and the popularity of podcasts. People are listening to podcasts.

If you’re able to have a podcast, that gives you one more channel to demonstrate your expertise, to be get in front of an audience. There’s a subset of advisors that can do that. And then there’s another subset that are not allowed to, their firm will not allow them to have a podcast.

Maybe it’s because the firm has no way, or feels they have no way, to properly supervise that activity or to be able to monitor what you say in the episodes. So, they simply say, you cannot have a podcast. We have one advisor that can have a podcast they can reach prospective clients with, and another advisor who’s not allowed to have a podcast.

#2 – One advisor can make videos demonstrating their expertise; the other is not allowed to make videos.

Number two….one advisor can make videos demonstrating their expertise and put the videos out into the marketplace. The other advisor is not allowed to make videos.

I’m a believer in videos. If you’re watching this in video format or you’ve seen my videos, I believe in the power of video. How effective it can be in getting yourself out there, demonstrating your expertise, proving your trustworthiness.

If you’re an advisor and you’re able to make videos, you can connect those dots. Or you’re an advisor that doesn’t have that, you are at a disadvantage.

I’ll give you an example from an advisor I know. He was at a captive firm. I won’t name the firm. He wanted to make videos to demonstrate his expertise to show prospective clients and existing clients how he can help them.

He went to his firm and said, “I’d like to make videos on different topics.” Their response was essentially, “There’s no regulation that says you can’t make videos. We trust you know what you’re talking about and trust that you wouldn’t say anything irresponsible in the videos. But here’s the problem. We have thousands of advisors at our firm. We have no means, at least currently, to be able to monitor thousands of advisors making videos. Some of them might say things that we’re not comfortable with. So, by default, we have to say no to everyone, including you.”

It’s the classic managing to the lowest common denominator. He was told he couldn’t do it. He was competing against advisors who could. He’s since made the move to his own RIA, in part because he wanted to make videos. And he is now making videos for all the reasons I stated. It can be an advantage. So that’s another variable to consider.

#3 – One advisor can send an update email to clients after a volatile day in the market; the other doesn’t bother as, by the time the email is approved, the message is no longer timely.

Number three. This is one that is important for advisors to be able to do. If it’s a volatile day in the market, or there’s big news that comes out that moves the market or could move the market, in our tale of two advisors, one advisor can that same day draft and send an email to their clients. Perhaps providing talking points, some comfort to their clients. In one email they can communicate, “I’m paying attention to this stuff. I’m thinking of you. Here are some takeaways from it.” One advisor can do that.

The other advisor doesn’t bother because the compliance department at their firm says it must go through their review process first – because it is being sent to more than X number of recipients.  And the turnaround on their review is two, three, four, five, six, seven days, whatever the case is.

That advisor knows, by the time the review is complete, and hopefully approved, the message is already stale. It was based on the facts of the day. They wanted to get that message in front of their clients.

In our example, one advisor can send that email. The other advisor doesn’t even bother trying because they know there’s no chance they’re going to be able to turn it around quick enough for it to be an effective email. That’s a big difference from a satisfaction standpoint of clients. One advisor can do it, one advisor cannot do it.

#4 – One advisor can respond to inquiries from the media to help build their brand; the other must defer to their firm’s PR department.

Number four….one advisor can respond to media inquiries. If someone from the media or an industry periodical or the local newspaper, the local news, reaches out and wants a quote, wants perspective, one advisor can be quoted, give their opinion. That’s another way for them to get their name out there, build their brand, build their firm in the marketplace.

The other advisor is not allowed to do that. The firm they’re at has a corporate policy that says, “You cannot talk to the media. You need to defer any requests that come your way to our corporate PR team. They will answer on our behalf.”

You can understand how that is a brand building exercise for one advisor. It is absolutely a dead end for the other advisor when that opportunity comes along. Again, big difference there.

#5 – One advisor can use software tools like Calendly to make it easy for current/prospective clients to set appointments; the other is not allowed.

Number five….one advisor can use software tools like Calendly to help schedule meetings. The other advisor cannot.

I’m a big proponent of Calendly, and similar scheduling tools. From an efficiency standpoint, it makes life significantly easier, both for yourself and your clients and prospective clients.  Instead of going back and forth, leaving voicemails, trying to get something scheduled, you can at least give them the option of using the scheduling tool.

They might not take you up on it, but you can at least say, “Here’s the link. Feel free to pick a time that works for you.”  It’s huge from an efficiency standpoint.

Calendly and similar scheduling tools have been around for years now. And yet, there are still firms – they typically have concerns over the security of the tool – that will not let you use them. Even though they have been around for years.

Again, tale of two advisors. One advisor can make things much easier for their prospective clients and existing clients. The other advisor cannot use a simple software tool that has been around for years. Another example of a tale of two advisors.

#6 – One advisor can choose from the universe of technology tools to make their practice more efficient; the other can only use what their firm approves.

Extending the technology theme, one advisor can search the universe of fintech solutions. That might be tools to improve efficiency, client reporting, risk analysis, whatever the case is. One of our two advisors can look at everything that is available and use whatever they want.

Now, there might be some logistics involved. Can a particular tech tool integrate with the rest of their tech stack? But if it’s available, if they like it, they like the value proposition, the price point, and they can work it into their workflows, they can use whatever tools they want.

The other advisor can only use technology that their firm has either built themselves – proprietary technology – or tech on an approved list that their firm has narrowed down from the vast universe of fintech solutions

One advisor can use the entire universe. The other can only use a small subset. That’s a big difference in the tale of our two advisors.

#7 – One advisor can start a blog to demonstrate their thought leadership and build an audience; the other can only use canned commentary created by their firm.

Number seven, this is another one that hits home for me because I do this myself.

One advisor can have a blog to demonstrate their expertise, demonstrate their knowledge, give prospective clients a chance to see that you can provide value to them before asking that they meet with you.

In the world we live in now, prospective clients in all industries don’t want to blindly pick up the phone and give someone a call. They don’t want to blindly come and meet you. They want to see first, on their own time without any commitment, that you potentially can help them. That you know what you’re talking about. That you have the expertise to help them.

A blog is a wonderful way to demonstrate that expertise. Give prospective clients a chance to look at your content and decide whether to follow up with you. In all industries, this is increasingly important. Your business development strategy must involve content.

In our tale of two advisors, one can make a blog and put their expertise out there, their knowledge out there. The other advisor cannot make a blog. Or if they can, they’re told they can only use content that has been premade by the firm for them.

It’s painfully obvious when articles are not written by the advisor. They’re written by some marketing team. It’s obvious the same articles are being used by who knows how many other advisors. There’s no thought leadership being demonstrated. It’s copy & paste.

I would argue this is worse than publishing no content at all. It screams either, I’m not capable of making my own content or I’m not able to make my own content. So, I’d rather just cut and paste this in here and attempt to pass it off as a demonstration of my expertise.

Again, tale of two advisors. One can make a blog, can put content out there. Personalized content they have made. The other one either can’t do anything at all or must use only canned commentary, which screams not made by the advisor.

#8 – One advisor can post on any social media platform; the other can only post on approved and monitored accounts.

Next is number eight. If you make videos, if you make podcasts, make blog articles, whatever, you’ll likely want to share those resources. One way is via social media.

With our tale of two advisors, one advisor can use whatever social media accounts they want to use. If they want to use Twitter, they can. If they want to use LinkedIn, they can. If they want to use TikTok, they can. They can use whatever they want because they control their own process for it.

The other advisor is told exactly which accounts they are allowed to use, and which accounts they are not allowed to use.

And of the ones they’re allowed to use, it is most likely also monitored by some big brother software, that can go so far as arbitrarily deleting tweets, posts, etc. you’ve made without your knowledge. The software might flag some verbiage you used, decide to reject it, and automatically delete it from your account.

These are your personal social media accounts that are forced to run through some system. That big brother system gets to decide whether you are worthy of making a social media post in your own account.

Again, one advisor can use whatever social media platforms they want, no big brother involved. The other advisor must deal with everything I just described.

#9 – One advisor can offer multiple fee structures for clients to choose from; the other can only offer what their firm allows.

Number nine….one advisor can offer pretty much any fee schedule to clients that they want to. Now to be clear, there are still some defined norms as to what would be reasonable and appropriate. If you have an AUM fee, you can’t charge 7%. Regulators will take issue with that.

But the point is that one of our two advisors can potentially utilize AUM fees, retainer fees, monthly fees, hourly fees, etc. They can structure their fee schedule and service offering to clients using whatever fee schedule they would like to use.  There’s disclosures and logistics involved, but that flexibility is generally there.

If they want to use an AUM fee schedule with most of their clients, but there’s a subset of clients where it makes more sense to do hourly or flat fees or monthly or whatever the case is, they have that flexibility.

One advisor can implement this with complete flexibility. The other advisor must adhere to how their firm allows them to charge their fees.  Maybe there are only a few ways you can charge your fees. These are the maximums you can charge. Maybe you want to offer hourly fees, but they don’t allow that.  Or they have a cumbersome process for it, so it’s not worth trying.

One of our advisors can tailor their service experience and pricing schedule to their audience. The other is limited by what their firm says they’re allowed to use. A big difference between those two options.

#10 – One advisor can choose from any accessible investment management solution; the other is confined to a limited set of options chosen by their firm.

The next one, number 10, relates to using third party asset management solutions.  Some advisors choose to manage clients asset themselves, while other look to use managed solutions.

With our tale of two advisors, assume they both use managed solutions. One of them can utilize any accessible managed solution that is available in the marketplace.

When I say accessible, they must have a way to integrate back to the custodian(s) being used.  Assuming they can check that box, one advisor can choose whichever solution they find attractive. The other advisor can only access certain managed solutions curated by their firm. The firm has decided what’s worthy for you and your clients.

Now to be fair, they probably pick some good solutions. But make no mistake, it is only a small subset of the solutions available in the marketplace. This is in part due to supervisory reasons. They can’t have thousands of advisors using different solutions, so they are forced to narrow it down.

So again, a tale of two advisors. One has mostly the entire universe of options to choose from. The other, a curated list that they have pretty much no control over of what is on the list or not.

#11 – One advisor can offer additional auxiliary services such as tax planning, insurance, etc.; the other is limited to almost none of these.

Number 11….one advisor, in addition to traditional financial planning and asset management services, can also offer additional auxiliary services. Perhaps accounting services, tax planning, insurance services, etc.

As your own RIA, there are certain disclosures you must make about such services, but you can incorporate them into your practice. You can do those things.

Our other advisor in most cases cannot offer tax planning. Or accounting services. They might be able to offer insurance, but again, it’s limited to what their firm approves.

I often talk to advisors who want to offer family office style services.  In our example, one advisor can offer some of those.  The other in most cases cannot.

#12 – One advisor can service clients of any size; the other receives reduced or zero compensation on some relationships.

Number 12….one advisor can work with clients of any size they want, and get paid for it. The other advisor either can’t work with smaller clients, or is not paid on them, or receives reduced compensation.

This topic is timely. I am making this episode towards the end of the calendar year, which is when most wirehouse firms roll out their annual compensation updates. Don’t get me started on that! I can make an entire episode ranting about that.

Many of these firms tweak how large a client must be for an advisor to be paid on.  With that dollar amount seemingly rising every year. If the client is under that dollar amount, you can perhaps still work with them, you will just have either a 0% payout or a very reduced payout on it. They are essentially penalizing you for working with smaller clients.

Now, maybe you don’t want to work with a lot of small clients. But there are scenarios where it can be attractive. The classic example is of the doctor shortly out of training. They have a very nice income, but as it stands now, don’t yet have a large amount of investable assets.  But over the coming years they could grow into a very nice client to have. Yet your firm is telling you that you can’t service that client, or can’t get paid for it.

What are you supposed to do? Try to catch them down the road when they have more assets, while hoping no other advisor comes along in the interim and can help them?

This is a big difference between our two advisors.  One can work with clients of any size and get paid for it. The other advisor is limited or maybe not paid at all on such clients.

#13 – One advisor can create a custom website demonstrating their subject matter expertise; the other must use the same undifferentiated website as thousands of their firm peers.

Ok, last item. Number 13. One advisor can make a custom website showcasing the things I’ve been talking about here. Maybe they have videos, or they link to their podcast. They have a blog. They can have all that content. They can specify exactly how they are unique and different and what they do for clients.

That’s one advisor. The other advisor, nope. The other advisor must use the templated website that their firm provides. They can do some slight customization to it (ex: their name), but their page looks the exact same as thousands of other advisors’ pages. It’s undifferentiated.

Clients see right through that. They go to that website – well on the chance they even go to it, because it’s probably some sub-page of the firm’s website. It’s not even a custom domain.

If your clients and prospective clients make it that far, they see a canned templated website. It’s no different from the thousands of other advisors at the firm. That is not going to impress any clients. That’s not going to make them want to take that next step with you. They’re not going to think you can help them solve their unique needs.

You haven’t been able to show content, videos, podcasts or however it is you want to demonstrate your expertise. Instead, you just have a canned, templated website.

Now you might be thinking…“Brad, I don’t have any interest in having a podcast. That’s not my thing.” Or, “I don’t want to make videos.” That’s fine. I’m not suggesting you need all 13 of these things. What I am suggesting though is there are advisors in the RIA space who can do all 13 of these. They’re all available to them.

You might say, “I don’t want to do all 13 of those things, or I don’t feel I need to do all 13 things.” That’s fine, but other advisors have access to all of it, and you potentially don’t. If you are at a wirehouse firm, a traditional brokerage firm, or anything that constrains you from being able to do most, if not all these 13 things I just described, just know you have competition that can.

There are other advisors in your town, maybe across the street from you, you are all trying to attract clients. If one advisor has access to all 13 of these and you maybe have access to none, that is hard to compete. Maybe you don’t want to do all 13, but maybe you want to do some of them. Is it a fair competition or are you playing basketball with one hand tied behind your back?

It’s hard to compete against someone with an advantage of how they can attract clients and work with their existing clients. Because of the type of firm and model you’re at, you are potentially being forced to tie one hand behind your back. Your competition, the other advisors you’re competing against, might have much more flexibility, as we talked about on today’s episode.

If any of the topics we discussed today are something you’d like to talk about further, that is the sort of thing I help advisors with. I help you understand what you can do in the RIA model. How does it work? What options do you have? How would you implement these sorts of things and how does it differ from what you have now? I’m happy to have that conversation with you as well.

Like I said at the top, my name is Brad Wales with Transition To RIA. If you head to TransitionToRIA.com, you can find all the resources I’ve made to help you better understand the RIA model. I practice what I preach, I create a lot of content. I can help you understand how it would apply to you.

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

Again, TransitionToRIA.com. You can find all the videos, podcasts, articles, whitepapers, all the resources there.

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

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