Even if every firm out there had the money to scale up, there may not be enough talent out there for everyone -- at any price. That’s an opportunity and a challenge.
A big technology vendor told me the other day that RIAs are looking at automation.
Basically, these firms want to scale up and initially wanted to hire more human advisors to handle the new accounts, but couldn’t find enough talent.
It wasn’t that they were getting shut out by bigger and richer firms. It’s just that there aren’t all that many really great advisors in play right now.
Because their recruiting has hit a wall, these RIAs are now trying to stretch the advisors they have by programming their expertise into Web applications that will handle record-keeping, data entry, and even a lot of the everyday planning and asset management calls.
We’ll have to see how well that works out for them, but it points to a very real problem of supply and demand in the industry right now.
Everyone in the business wants experienced advisors who can bring established books of business with them. They don’t want to train anyone up from scratch.
But naturally, if you only hire veteran advisors, they’re still going to be busy working with their existing clients. At least, that’s the plan.
As a result, the more people you hire, the more you’re mostly bolting on AUM without adding much in the way of capacity to handle new organic business.
And you’re paying a premium in terms of transition packages to acquire that AUM.
Meanwhile, whether they like it or not, RIA firms need capacity.
Putting numbers from various places together, head count in the RIA channel expanded 21% or so since 2004, but AUM expanded right along with it.
If anything, head count was the bottleneck keeping AUM from growing faster.
A lot of people are coming into the channel from the wirehouses or independent broker-dealers, but while some of them are great, the rest aren’t quite cut out for the RIA world. At best, they still need some training.
If you’re one of the great ones and you’re on the move, that’s the good news. You can probably find someone out there to buy your book and fold you into a bigger organization.
Word of advice: Don’t just sell yourself as so much AUM generating so much in fees.
Figure out how many more clients you could reasonably serve, and make sure you let your negotiating partners know how much spare capacity you can bring them.
And if you’re looking for capacity, start at home.
Consider cloning yourself in any way you can so you personally can serve more accounts without dropping any of the balls or driving yourself crazy.
This might entail offloading more of the everyday work on technology or taking in less experienced advisors who might still need some molding.
Either way, it’s a way to stretch the talent you already have -- without paying through the nose to get it.