Q68 – What Are Mistakes To Avoid When Trying To Recruit Advisors To Join Your RIA?

Also available as podcast (Episode #68)

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What Are Mistakes To Avoid When Trying To Recruit Advisors To Join Your RIA?

There are two ways to grow an RIA.  Organically from expanding existing client relationships and bringing on new clients.  And inorganically, from acquiring practices and/or attracting advisors to join your RIA and bringing their clients with them.  When doing the latter, it is important to understand the competitive landscape and what is expected of joining advisors.  There are a multitude of mistakes to avoid with such an approach, which if not, will generally make your recruiting efforts futile.

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Full Transcript:

What are mistakes to avoid when trying to recruit advisors to join your RIA? That is today’s question on the Transition To RIA question and answer series. It is question #68.

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

If you are more of a podcast fan, and you’re currently watching this on video, if you search for the “Transition To RIA Podcast” on all major podcasting platforms, you will be able to find the show. Again, TransitionToRIA.com.

Today’s episode is a topic that I discuss with a lot of advisors that are either not currently in the RIA model and are planning to transition to it – which is the bulk of the advisors I work with – or are advisors that already have their own RIA.

In either circumstance, part of their vision is to grow their firm not only via organic growth with their existing clients and prospective clients, but also to attract advisors to join their RIA.

I did an episode on why you might want to join an existing RIA versus starting your own, so if you’re not familiar with that, check out that episode as well.

In this case, if you’re an RIA trying to attract advisors into your firm, there are several things you need to be considering as part of that process. On this episode, I’m going to go over seven mistakes that I see RIAs make as they work to attract advisors to their firm.

Mistake #1 – You do not have a defined offering.

First mistake, you do not have a defined offering. You need to put pencil to paper and think through the nuts and bolts of what your offer will be. Are your joining advisors going to be 1099, or will they be W-2? Will you provide office space? Are you open to all geographies, or would you like to keep it local, or a particular region? How are you going to price your services?

You can’t be everything to everyone. It will be obvious if you try. As they say, if you’re everything to everyone, you’re everything to no one.

So, you need to put pencil to paper and figure out, “What is the ideal setup that would work for me as the RIA, and what do I think would be most attractive for the advisors that might want to join my RIA, and what can I deliver on?”

Again, things like are they 1099, W-2? Will you provide an office? What geographies are you open to? What size advisors are you open to? How are you going to price out the services? That sort of thing.

Mistake #2 – You have a weak value proposition.

Next mistake, you have a weak value proposition. Let’s say you have a defined offering. You’ve put it on paper and sketched it out. Imagine a prospective advisor asked you, “Why should I join your firm versus another one?” Or “Why should I join your firm versus starting my own?”

You need to have a polished answer for that. It’s the same thing that you have developed, and I’m sure refined over time, with prospective clients that come to you. When they sit down, and you’re helping them, and they ask, “Why should I bring my business to you? Why are you the best person to help me?”

You likely have an eloquent way of explaining your value proposition, explaining why you are best to provide for that investor client. Whether you want to call it an elevator pitch, or however you want to phrase it, you need to be able to articulate what your value proposition is as an RIA.

Again, you can’t be everything to everyone, so you need to have both a defined message, and avoid using cliché answers.

If an advisor asks, “Why should I join your firm?”, your answer can’t simply be, “We provide great service to our clients and to our advisors.” Every RIA on the planet says that.

Whether every RIA delivers on it is debatable, and some surely do more than others, but the reality is every RIA says they provide great service. If that is your value proposition, know every other RIA option is either saying it or demonstrating the same thing.

You need a better value proposition than a generic, cliché statement about how “We provide great service.” I encourage you to think through how your message can resonate. How can you be different from someone else?

I’ll just give you some examples I’ve come across. You don’t have to super narrowly define your angle, but it helps when you explain your firm.

I’ve come across RIAs that focus solely on advisors using a DFA/Vanguard investment style. That’s their lane, and they stay in it. If an advisor has a different investment style, that’s fine, that RIA is not for them.

Other firms focus on female advisors, or clients that have certain occupations, or advisors at certain stages in their career. Maybe you are a landing spot for advisors that are five years away from wanting to have a succession, and that is your value proposition.

Pick your lane, stay in your lane, and be able to articulate how you are different. That’s your value proposition.

Mistake #3 – You price your offering as a payout.

Next mistake, you price your offering as a payout. In the RIA world, for those not already in it, it is different in many ways from the broker-dealer world.  In the B/D model, a payout is the typical compensation arrangement. Every dollar that comes in, you get (for example) 40% under an employee model, or an independent channel some higher percent. The firm keeps the rest.

Some RIAs price it that way, but the majority that I’ve come across, that are attracting advisors, do the inverse. As opposed to saying, “Here’s our defined offer, here’s our value proposition, here’s everything you get,” as opposed to saying, “We give you an 85% payout,” the more typical arrangement in the RIA model is to do the inverse of that. Typically in basis points, more so than a percent of revenue. Though you could do either one.

Example:  “Here’s everything we provide. In return, we charge you 15 basis points on your AUM.”

This is a cleaner way to look at any sort of affiliation arrangement. I think this is how wirehouse firms should do it, independent broker-dealer firms should do it. I’ve ranted about this in a lot of these episodes and articles I’ve written. It’s the inverse that matters.

Basically, what you’re saying as an RIA (looking to attract advisors) is, “We’ve packaged up these services. You are going to need these services to be able to service your clients. You can start your own firm, and source these services individually and build it out yourself. Or, we’ve bundled it up for you and charge you X basis points for it.”

Wirehouse and independent broker-dealers should position it the same way. If you’re at a wirehouse firm now they are likely providing you an office, compliance support, likely some sort of staff, maybe benefits. They’re providing you value, and they’re charging you for it. But as opposed to putting a price tag on what they’re charging you, they’re using the typical payout approach. What generally happens in the RIA space is the opposite, as I’ve noted.

Related, you can get creative with this. I’ve seen some RIAs offer (for example) two packages.  One package is a “base” package that provides X, Y, Z and is priced at perhaps 15 basis points. They then have a “base+” package that offers everything in the “base” package, but additionally also A, B, C, and for that they charge 20 basis points. They are agnostic on which package you choose.

You can get creative in how you price these. If your value proposition can be justified by your price, and you have a good way to message it, you can do it however you want. Most firms use an inverse approach, and most of them often express it in basis points. But again, you can do it however you want.

Mistake #4 – You don’t have an organized process for attracting and onboarding advisors.

Let’s say you get past these initial hurdles that I just talked about. Next is how are you going to attract advisors to have conversations with? And when you have conversations, what is your process for helping them do their due diligence and learn about your value proposition?

Map that out. Don’t assume that one lunch meeting with an advisor is sufficient. That’s not going to be the case. It might start with a lunch or an informal meeting with an advisor you’re trying to attract, but that alone is not going to convince them, nor should it, of your value proposition, and all that you have to offer, because that takes time to demonstrate.

Maybe you have a defined process where you say, “We have a series of three meetings, or three phone calls, or three Zooms,” or whatever the case is, “that we like to do with advisors.” The first is an informal, get to know each other, explain the value proposition, etc.

The second is a deeper dive on the technology offering, the service offering, the operational offering.

The third is a deep dive on what you do as an RIA to help them transition over.

For operational reasons, you need to have this defined process for how to attract and onboard advisors. Equally important is to instill confidence in advisors that you might be trying to attract to your firm. This is their livelihood.

If they like your value proposition, they like your price, they like everything you have to offer, you must give them confidence that you will help them successfully navigate into your practice. You need to be able to demonstrate that, again, with an organized process. Demonstrate it from the very moment you start talking to them, even when it’s just learning more about your practice.

Mistake #5 – You don’t explicitly state that joining advisors will have ownership of their client relationships.

Next, you don’t explicitly state that joining advisors will have ownership of their client relationships. That’s the fancy way of saying the advisor will own their book, they’ll own their clients.

The exception to this is if your RIA acquires practices, and you say, “Anyone that joins our firm, part of our value proposition is we acquire your practice, perhaps for succession needs.” That’s a different scenario.

Another scenario might be if you have some sort of “partnership” arrangement, where everyone that comes in is now a partner of the firm, and the equity is split accordingly.

So, there are some scenarios where retaining book ownership is not applicable. But when that is not the case, you need to make it explicitly clear that the advisor retains the client, the ownership of the client book of business. On the chance that they ever one day wanted to leave, they are free to do so and free to take their clients with them.

This is what advisors demand and should get. Unless you are buying their practice, or making them part owner or partner, whatever the case is, you cannot expect someone to join your firm, and arbitrarily give up the ability to one day take their clients elsewhere, having never received compensation for the ownership of their practice.

Put this in writing. Advisors are going to expect it, and they deserve to see it.

I would also say, “We treat advisors that join us as free agents. That’s how we think of you. We know that in any given year, any given month, or day, if you wanted to leave us, you could, and you could take all your clients with you, and we will do nothing to stop you. As a result, we, as the RIA, have a responsibility to provide you good value, for a good price, every single day, to make it so you don’t ever want to leave.”

That is how you drive advisor satisfaction. Every day you should work hard to retain your advisors and keep them satisfied. Make it so advisors never want to leave.

Do not put up arbitrary roadblocks. If an advisor wants to leave because you’re not providing good value, or they simply think a different path is now better for them at that stage in their career, do not put up arbitrary roadblocks. Unless you’ve formally acquired the practice, make it very clear the advisor is free to leave, the advisor is free to take their clients with them.

Mistake #6 – You try to punch above your weight.

Next, you try to punch above your weight.

Like I talked about at the top, you cannot be everything to everyone. If someone asks, “What kind of advisors do you attract?” If you say, “Advisors of all sizes, and all geographies, all experience levels, all investment focuses,” that’s not going to resonate with any advisor.

Pick your defined offering, but you also must be realistic. If you are an RIA with (for example) $700 million in client assets, you likely are not going to be able to easily attract an advisor team that has $2 billion. They might feel, “We are much larger than you already, we have more sophisticated client needs.” That’s likely not going to be a good fit. You’re trying to punch above your weight.

Well, what happens if you’re still a relatively smaller RIA, and you’re trying to attract advisors in?  Yes, it’s helpful from an operational perspective, a risk perspective, everything, to have larger advisors on your team. But you have to be realistic. You can’t have $100 million and think you’re going to attract $600 million advisors. Your story isn’t likely to resonate.

If you punch too far above your weight, you probably haven’t built out the needed resources, and support, and the sophistication needed to handle someone much larger.

Now, one day, when your firm is that much larger, and you’ve refined your offering, you’ve refined your services, then you can look at larger opportunities. But be realistic about how quickly you can grow, and the size advisors you can attract into your firm at your current size

This race never ends. Even if you have $1 billion in assets, or $2 billion, well, there could be a $4 billion team at some wirehouse that you’re likely not a fit for. No firm gets to the finish line.

At whatever point in time, be aware of the advisor profile that you can successfully service and attract. It might change over time as your firm changes, but always identify where that is, and keep that as a focus.

Mistake #7 – You don’t know your competition.

Finally, you don’t know your competition. You don’t have to know about every RIA, because you can’t. There are thousands and thousands of RIAs, and they all have different value propositions, they all have different stories.

But if you don’t know how any other RIA prices their services, or how they package it up, you can’t take a blank piece of paper and assume you’re going to nail it dead on and be competitive with your offer.

An example is how you work with your own investor clients. You don’t need to be aware of how every advisor in town charges for their service, and exactly what services they provide. But you do have to have a general idea of the going rate for fees charged to clients, the average expectation of services that need to be provided, etc.

The same thing happens if you have an RIA. You need to know, “What is my competition doing? How are they setting their pricing? How are they packaging it?”

You don’t have to copy them, but you at least need to know what’s out there so that you can ensure that you’re competitive. You don’t have to be the cheapest, and you don’t have to be the most expensive. But you must know where that spectrum lies. What’s your value proposition, and what’s realistic to charge?

With that, I hope this has been helpful. For many of you, this might not ever be applicable, because maybe you have no intention of trying to attract advisors into your firm. But if you’re thinking about maybe joining an existing RIA – again, I did a separate episode on that – these are things you should be asking about. How is it going to be priced out? What are the services? How are you different?

Equally important, if you are an RIA that wants to attract advisors to your firm, these are things you need to be thinking about. So, I hope you found this list helpful today. I’m happy to talk this over with you if you would like.

If you’re not already there, head to TransitionToRIA.com. You can find my resources. The video series, the same series in podcast format, I have whitepapers, I have articles.

At the top of every page is a contact link. Click on that, you can instantly and easily schedule a 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 am 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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