Q87 – What Is The Most Important Software For A New RIA?

Also available as podcast (Episode #87)

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What Is The Most Important Software For A New RIA?

When starting a Registered Investment Advisor (“RIA”) there are several variables that need to be solved for.  Among others, this includes solutions for custodial services, compliance, insurance, technology, etc.  Each variable necessitates identifying the needs of the RIA, and the solution providers that can be used to solve for it.  When it comes to technology, there are dozens of different types of solutions, provided by hundreds of fintech vendors. While each have an ability to add value to the practice, an RIA’s Customer Relationship Management tool (“CRM”) is generally the most important tool in the arsenal.

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Full Transcript:

What is the most important software for a new RIA? That is today’s question on the Transition To RIA question and answer series. It is episode #87.

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 where you’ll find all of the resources I make available. This entire series is available in video format, podcast format. I have articles, I have whitepapers. All kinds of things to help you better understand the RIA model. Again, TransitionToRIA.com.

On today’s episode, we’re going to talk about if you were to transition into the RIA model, and there’s lots of things you need to be thinking through that I talk about on these episodes, but what is the most important piece of software that you need to be thinking about to make that transition?

As I alluded to, there are several variables and decisions that go into transitioning into the model. You first need to decide whether this is even something you should be considering in the first place, whether the RIA model meets the needs of your practice. Does it make sense for you to make that transition?

But let’s say you’ve gone through that exercise – that is something I help advisors understand and think through; does this make sense to be doing?

Let’s say you’ve gone through that exercise, it makes sense to transition into it. In its simplest form, a transition is an exercise of identifying what your current firm provides for you now, and how you will replicate that on your own. Ideally for less money, and of course, the goal is with more flexibility.

I have a one-page checklist that identifies those variables. Feel free to reach out to me. TransitionToRIA.com has contact information. If you’d like the checklist, shoot me an email, I’ll send it to you.

One of the variables is the technology that your new practice will need in the RIA model. This is often referred to as a tech stack. I did an episode on what is a tech stack, if you want to dive further into the topic. But solving for technology is an important part of it.

Now, there’s different ways into the model. I talk about this frequently. You can start your own RIA and piece all these things together yourself, including each of the technology pieces. There are also different kinds of bundled solutions, that have already been bundled up for you.

There are solution providers who say, “We understand you’re going to need to put all these pieces together. We’ve bundled up what we feel is best-in-breed.”  And there’s different ways they go about offering that to you.

However you approach it, whether it’s going to be via a bundled solution or you’re going to piece the individual parts together yourself, technology is very important.

So, today’s episode, the question is, out of the entire technology universe that you could pull from – which has expanded now in the RIA space to include hundreds of different FinTech vendors; there’s all kinds of great tools and resources to potentially implement with your practice and your clients – which one is the most important?

Now, of course, that’s a subjective question. My answer is my opinion, but a lot of people answer it the same.

The most important piece of software is the CRM, the customer relationship management tool.

A CRM is what you use to keep track of your existing clients and your prospective clients. I will get into why it’s so important, but having a CRM is non-negotiable, in my opinion. It is a must for any modern RIA to have a CRM.

Some of you, no matter where you are, what kind of affiliation model or firm you’re at now, you have already embraced how important a CRM is and use it actively in your practice now, though perhaps with some constraints because of whatever kind of firm or affiliation model you’re at. So, some of you are already actively embracing a CRM.

There are other folks that their “CRM” system, is solely their Outlook email. That’s how they keep track of client notes, by the emails they’ve had with the clients.

That is perhaps an approach, but a good CRM far exceeds what’s capable to do out of just Outlook.

Some folks even use an Excel spreadsheet as their CRM.  Again, that is far inferior to a good standalone CRM tool.

Having a good CRM is non-negotiable. Some of you are embracing it, while others use a CRM tool now only because their current firm requires them to.

Perhaps at your firm, a broker-dealer type firm, you’ve been told, “You must put notes into the CRM.” Perhaps noting every client meeting, why you did or did not place trades in an account, etc.

For some of you, it has been more of a burden, a nuisance, a requirement that you use the CRM. That’s maybe the reality of your current affiliation model. But in the RIA model, it should be looked at as a positive, to communicate with clients and build your sales funnel with prospective clients.

In the RIA model, you might add notes for various reasons as well. But if historically you’ve primarily only used it because you’ve been “forced to,” and you’ve been forced to use it in a certain way and forced to put certain kinds of notes in there, I can understand why you might not embrace it for all it is because it’s more of a hindrance, a must-do, because your firm is forcing you to. As opposed to embracing it for what it can do for you.

I just wanted to comment on the different motivations people have for using a CRM. But going forward, it’s so important, it’s why I’m so passionate about the CRM being the most important part of the tech stack.

I’ll give some examples of why a CRM is so important to use with existing clients.

First is related to the frequent talk about fee compression. With asset management getting (arguably) commoditized, advisors’ fees are surely having to come down, right?!

We’re not really seeing fee compression though. The proverbial, give or take 1% AUM fee, has essentially held steady over the years. But advisors in turn are now required to provide more value for that 1% than they did before.

So how do you keep track that you’re providing ongoing value to your clients?

Perhaps there’s certain reminders you give them at certain times of the year. Maybe IRA contributions that need to be done, or withdrawals that must be taken out of account.

As you add value and you potentially have hundreds of clients, there’s no way to keep track, to be reminded throughout the year, of touchpoints you need to be having with which clients, in which capacity. A CRM will do that for you.

Related, you hear talk more and more about having a service calendar with your clients. Part of your value proposition are certain things you do for them throughout the (calendar) year.  Maybe on a monthly or quarterly basis.

If that’s something you want to do, beyond explaining it to your clients, you need a way to deliver it. How are you going to remember to do what value-adds, and when? Again, the CRM can be used for that.

Another way the CRM is used with clients is with personal touchpoints. Things like birthdays or anniversaries. Or if they tell you their going on a family ski trip later in the year, you’re able to put that into the CRM and have it remind you to reach out to them and wish them a great trip. That adds a personal touch. That adds stickiness for the client that they say, “My advisor really has a relationship with me.”

If you have hundreds of clients, unless you have the most amazing memory on the planet, you’re not going to remember birthdays and anniversaries and when that ski trip is, or when they’re dropping their child off at college that they mentioned. The CRM gives you a chance to put those notes into the system and be reminded of them at future dates.

It might be something eight months down the line, it’s something important to the client, some personal thing they’re doing, and you might make a mental note to eventually wish them luck with it, or to tell them to have a great time. You put that in the CRM, and it reminds you eight months from now. That’s why it’s so useful.

The final example I’ll share regarding existing clients, is that it’s helpful to be able to easily reflect on what you last talked about with a client.

Whether the client calls you up and you can quickly reference the CRM, or you have a scheduled call or meeting with the client, it’s helpful to be able to look back through the notes, particularly the last conversation you had with them.

You’ll be able to reference, “last time we met, we talked about X, Y, Z,” or “last time we talked, here’s what we agreed would be next steps.”

Again, with hundreds of clients, it’s not realistic to remember that off the top of your head. You’re going to need those notes.

And keep in mind, the client generally only has one financial advisor. They will likely remember what you last spoke about with them because they only have that one conversation to remember.

Advisors with dozens or potentially hundreds of clients, you’re not going to, off memory alone, remember what your last conversations were with all your clients. That’s what the CRM, and the notes you put in the CRM will help you remember.

And as far as the client knows, you are remembering exactly what was last talked about, and you can weave it into your new conversation with them.

Next, is the value a CRM can be with your prospective clients.

I’m not a marketing guru, I’m not a sales or a business development guru, but there is the universal understanding that you have to build a funnel of prospective clients.

You’re generally not going to have one conversation with a prospective client and instantly turn them into an onboarded client. There’s usually going to be process to show them your value, to bring them to your practice, to utilize your services. That could be weeks, months, sometimes years for some perspective clients. You need a way to have systematic touchpoints with those prospective clients as you work them through your funnel.

If you want to have a touch point, whatever frequency you think is best, once a month, twice a month, every two months, quarter, whatever the frequency is, how are you going to remember which prospects you’ve touched when, and in what regard?

Again, the CRM is a way to remind you of it. To remember to take those steps.

You’ll sometimes hear sales gurus or business gurus say, “The number one thing you can do to get new clients is simply follow up.” Sometimes the prospect could be busy on one of those follow-ups. They don’t return your call, they don’t get back to you. It’s not perhaps because they’re disinterested, just life got busy on them. It might not be till the second or third one. It’s all about the follow-up.

I’ll give an example from my personal life. I need to buy a new front door for my house. I have discovered that is a much bigger process than I ever thought it would be. All kinds of variables that go into it.

I’ve had a door guy come out, he’s looked at it, and he’s given us options. He sent us some quotes. My life got busy though, both business and personal, and I simply haven’t followed-up with him yet.

Now, I still intend on doing that. I even have the specific option picked out I want. He followed-up one time, and hasn’t again since.

It’s my fault, I keep kicking the can, because again, life is busy and I have other things going on.

If he was dripping on me every three weeks or so, I would’ve already had the thing done, because eventually, I’d focus on it and just get it done. I know he’s my guy, I know he has the solution I need.  Yet, he’s done barely any follow-up.

Follow-up is very important with a prospect pipeline.  A CRM helps you systematize it, makes it very easy.

From here, I just want to share a few tips and rules when it comes to a CRM.

Hopefully I’ve ingrained in you why I believe a CRM is so important. So, the main rule I give….I guess there’s two main rules. Number one is you must have a CRM. Hopefully, I’ve made that clear. Again, I use the term, it’s non-negotiable. You must have a CRM in your practice.

Number two, when building out your RIA whether you’re using a bundled solution or piecing together everything yourself, I’m of the strong belief you do not want to tie your CRM to a custodian or to some other software tool.

Some custodians, as part of their value proposition, provide you with a proprietary CRM that they have created that is tied to their infrastructure. On one hand, that’s great because it’s fully integrated. Everything easily talks to each other. You don’t need third-party integrations to connect everything. There are pros to that.

The problem is, if you ever want to change custodians or perhaps add a custodian – I’ve done episodes on being multi-custodial – now you’ve tied yourself to that custodian and your data is stuck in their proprietary CRM.

All the future tasks and reminders you’ve set, all the notes you’ve entered, all the clients and prospective clients you’ve added, it’s now stuck, it’s tied with the custodian.

The same occurrence can happen with software solutions that have bundled in their own proprietary CRM into their tool. If the day ever came that you wanted to replace whatever that piece of software is, doing so might now force you to lose all your CRM data as well.

So, again, I’m of the strong belief that you should have a standalone CRM system. You want to make sure you use one that integrates with custodians or other software tools as needed, but if you want to be able to make changes in those other solution providers over time, you don’t want it to force you to also have to change your CRM, potentially lose your CRM data. Very, very important.

Another example of being involuntary tied to something relates to advisors at some of the independent broker/dealers.  Even if those firms proclaim you are independent, you can leave and take your clients with you, if they’ve been providing you with (and perhaps forcing you to use) a proprietary CRM, that data is stuck. You can’t easily, if at all, take it with you.

They might be able to give you some sort of database download of the data.  There are solutions that attempt to take that data and map it to a new CRM, but there is no guarantee that will be successful, let alone even feasible.

Your current firm might say, “It’s your data, we’re not going to hold it, you can have it.” Well, if you can’t use the data, it’s useless.

So, even if you’re in the independent broker-dealer world, unfortunately, you might have to start over with your CRM data.

My suggestion is, get yourself to a situation where you never are in that predicament again. Don’t have it tied to a custodian, or tied to a broker/dealer, or tied to some other software tool.

Finally, I want to give some final tips to end with.

There are several CRM providers that cater specifically to our industry. There are some wonderful solutions. Take your time researching which one to use. It is a big decision. You will likely be using that CRM for years, if not decades to come. You’ll want to commit a good amount of time to picking the solution that is best for you.

The next tip is once you have a CRM in place, you need to use it from day one. There are a lot of moving parts during a transition. A lot of things you need to be working on. It can be easy to kick the can on when you start using the CRM.

Next thing you know, three months, six months, maybe longer has passed. You’re not putting as many notes in as you should be, or setting reminders as you should be, etc.

You need to embrace using the new CRM from day one to maximize how it can make your practice more efficient and how you interact with clients. You must use it from day one.

The next tip is to invest time to learn how to use the CRM.

CRMs have become very powerful. Again, all these different ways to set tasks and reminders and to-dos and where to add value with your clients. If you don’t take the time to learn how to use all the resources, you’re, one, wasting money, and two, you’re not maximizing this very important tool.

After you’ve selected a CRM, you and your team need to invest time to do the training to maximize the CRM for your practice.

Now, you don’t have to use every bell and whistle it has. But you should be at least aware of most of what it has, and figure out what works best for your specific practice.

Because this is such an important tool, there are even CRM consultants. That is all they focus on. They help you pick the CRM to begin with, and then they will help train your team how to use it most efficiently, how to make sure you’re maximizing its value with the other software tools that you have.

The final tip, and this only applies to some of you, is some of you are at independent broker-dealers that allow their advisors to use 3rd party CRM tools, versus their in-house proprietary CRM.

Now, most important, make sure you do not break any rules of your current firm, make sure it is allowed. They might have preferred or approved third-party solutions.

Oftentimes, if you use one of the third-party solution, you might still be required to put at least some basic information into their proprietary CRM, because again, that’s generally what they’re using for compliance or supervisory reasons. So, there can be some duplicative steps with this idea.

However, if you aspire to, or think that one day you’ll want to go into the RIA model, and your firm will let you start using a 3rd party CRM now, even if your firm forces you to also put some basic notes into their CRM as well, I think it’s worth considering.

You can start building up the data, the client information, the prospect information in that standalone CRM.

I typically only see this as a possible option at independent broker-dealers. Not all of them allow it, but if your firm does, I encourage you to look into whether you could start using a CRM now. It will cost you money, but for the long term, I think you’re much better off the sooner you can get into a standalone CRM.

From the ranting I’ve done, you can tell I’m very passionate about this. I know from experience with my own business how important a CRM system is.

Whatever your motivations are for why you’re using a CRM now (or not, for that matter), you really want to embrace it for all the good reasons going forward, if you move into the RIA model.

With that, like I said, my name is Brad Wales. This is the type of conversation I have with advisors all day long. The important things you need to be thinking about to make a move into the RIA model. Which can include things you should consider doing now before making a transition. I’m happy to have that conversation with you as well.

As I said at the top, if you go to TransitionToRIA.com, you will find all the resources I make available. This entire series in video format, podcast format. I have articles, I have whitepapers. Everything to help you better understand the RIA model.

Again, TransitionToRIA.com.

At the top of every page, there’s a contact link. Click on that and you can instantly and easily schedule time to have a one-on-one conversation with me. I’m happy to do so.

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

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