Q&A: Inside the Mind of the Smaller Advisor

Advisors with assets below $250 million often receive the short end of the stick in this industry. They aren't able to offer the same level of service or media coverage as larger firms and lack the ability to negotiate with vendors in this space. Many pundits talk about how large firms will be dominant over small businesses if they consolidate.
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Many of these smaller firms are actually thriving and surviving, even though they don't want to grow. The number of service providers that cater to small advisors is increasing. Advisory Services Network is a platform that provides support and services to RIAs. It has quietly grown over the past couple of years, focusing on this segment.
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Yudenfreund Wealth Management with more than $100 million). These three advisors talk about their goals, challenges and how they prefer to keep control of their businesses rather than participating in the hot M&A market. This article has been edited to be more concise and clear.
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Andy Garrison: I am biased because I do what I do but they are the most important. They are the client experience, the client relationship, and the things we add value to them. While we all try to scale this industry in some areas, I believe there are still parts that we can do. But, I believe one of the biggest challenges is the stuff that doesn't add value to the client relationship. All of us have found solutions to a large portion of this, whether it be back-office or operations.
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These are what I would call indirect or maybe not completely relevant to the client's eyes. Things have always been difficult. Compliance and operations are the two most difficult areas that smaller firms may struggle with. Everything, from reviewing and billing to ensuring that everything runs smoothly with the custodians.
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Even though it's a small business, the time needed to get there is not guaranteed. It can be clients or family. Most of the time, it is both. So I believe that's why you are seeing a move in order to try and shift some of that work to someone who can do that at scale.
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Brandon Cabannis: Being independent at this level, you can wear many hats. You want to grow your business. Marketing, such as that, may not be your forte.
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We now have more control over dollars. Being independent and with the support of an admin and operations area from ASN, we still have the money to spend on other things and ways to grow the business. Are we looking to hire new staff members? Do we expand and buy other advisors? Is it better to continue on the path that's working well and build the business while keeping it small? There's always the question of how big you want to go and what you will do with the client service and personal sides. I believe that growth is better than having more clients. Our short-term goal is to grow our business by at least doubling in size.
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We can do it. Joel Yudenfreund - How can you stay in touch with your clients? How can you grow without growing too quickly? It's cliché, but it is true with our clients. It should remain that way.
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We are open to discussing with our clients not only tax planning but also investment management. If you want to be a part of that family, you must get to know them. It's important to keep in touch with your family and not become too involved that you don't know them well enough and end up putting off other people.
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WM: How can you maintain deep, integrated relationships with clients while scaling? JY: We've managed to achieve it so far. We have larger clients so we are able to maintain that focus. And we intend to continue doing that. We will add AUM, but not necessarily a huge amount of people to each, let's say $1,000,000 of AUM.
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Knowing the family is a key component of this business. Unfortunately, many people forget that. It's impossible to succeed if you only know the client. WM: What are the unique or different needs of a smaller advisor? AG: It's easier to sort through the noise when you have smaller practices.
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There is so much to choose from. Every day, there's new material. I believe we are all passionate about bringing the best to our clients. Not necessarily as an investment, but as a service, advice, and consideration aspect. As your company grows, so can sorting through all that.
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WM: How do you view all the M&A activity, particularly among large companies? To increase your scale and expand your services, have you ever considered merging or selling with another practice? BC: This was one option that we considered when we were weighing our options about becoming independent. So we began to look at local firms that could essentially acquire us. After weighing that with ASN and our advisors, we just said "no." We want to be able to talk about our business, how we communicate with the public, and how we interact with our clients. Before we are accepted into another culture, we want to have that chance first.
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Culture is the key word because we have control over it if we are independent and it's only us. One of our first interviews if we decide to acquire will be about the type and willingness to work with people. Do they share the same values and culture as us? We don't plan to do this at the moment. JY: We want to remain independent.
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You're always going backwards, whether you sell or merge. This is part of being independent. Once you return to another company, their procedures will be the same. They could change every week to be more candid.
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AG: I believe that the M&A market is a fascinating dichotomy. It's either a succession plan-type process, or if it's a way for firms to scale up or to transition. At one level, I believe that makes sense. It's always interesting to see how advisors and clients might be affected by a merger or similar. You just add 50% to your headcount if you already have two advisors.
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When we think about scaling up and growing, I believe we are all in a position to do so intentionally. WM: What are your thoughts on all the new options in M&A? JY: It is great to have choices, but ultimately it comes down to what you want. Some people might like to sell the company or make an acquisition. They may want to exit the business or retire. Or they just want to change careers and get more money.
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You may not get the full value of the transaction, but there are many other things you can do. You're losing the control that people were hoping to have when they first became independent. BC: We looked at several options and were not happy with the terms or the language.
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We decided to leave a large broker/dealer as we wanted to be independent and not be bound to many contracts. This is what we tell our clients and community: Financial independence means that you have control over your money. That's because loans and liabilities can often make it difficult to do that.
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It's not that we see it as a disadvantage, but it is not what we want. AG: Practicing was able to grow and develop the traditional route for many years before these options and financing options were available. I believe that many of us still love this concept. In succession planning, this is a traditional route. Get good advisors and help them build up.
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WM: How do you choose your custodians to protect your assets? JY: The majority of people we deal with come from private banking backgrounds. Because people in this world are familiar with BNY Mellon and Pershing, we lean heavily towards Pershing. We are always open to learning more about other custodians, and how they might do it better.
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Both the retail and private banking sides have their positives and minuses. It's important to weigh these views. Clients will have their own opinions if given the option. In my case, it is more than just private banking.
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BC: I have been very pleased with multi-custodial arrangements and being able offer clients multiple custodial options. Sometimes they may prefer one custodian, but in some cases the client wants custody at many locations at different custodians. This has been a competitive advantage over private banks and other banks. It's quite remarkable to be able offer fiduciary services, and then offer multi-custodial approaches.
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Fidelity holds most of our client accounts. I am interested in them as they are still private and run by a woman. I enjoy the educational content they provide to help women learn about money management and investing. AG: Options are great for advisors and businesses, but they are even better for clients. Having multiple custodial arrangements to be able have different places in different areas that can be found the right place for clients regardless of what may be happening is important.
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WM: Have you considered other pricing options for your services? Are you feeling any pressure to increase fees? Let's talk about it. BC: I have had my CFP certification since a long time, perhaps eight or ten years. This is the first time that I have been allowed to charge planning fees.
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This has been a huge blessing because I now feel that I can serve anyone. We've tested what I call the 'wealth builders' program for clients who don't meet our AUM threshold but still need planning services.
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This is a great way to keep smaller accounts under control and still provide service, especially if you have a client relationship, a child, a family member, or friend. You don't have to say no but you don’t want to take on too many small accounts. This is another revenue stream and a good way to develop your business. Eventually, those accounts will meet our minimum AUM.
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AG: It's always a good idea to think creatively about fees. Flat fees, planning fees, and AUM are all offered. I believe that this combination is appropriate for some clients. WM: Do you feel any pressure to reduce fees? JY: Not from our perspective.
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We are in the right place, and people know what we do. Our ability to speak to them about tax and state planning issues may be a differentiator. They really appreciate that we don't charge extra for this. It's something that clients expect if they're dealing with high-net worth clients.
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WM: What are your methods of communicating with clients regarding current market conditions? Are you making adjustments? AG: We try our best to be proactive. Clients are told that market cycles occur and they can't be avoided. What do we need to think about when they happen? Are we going to ask our accountants about Roth conversions? Yes. Is there any type of end-of the year tax loss harvesting that we would like to look at? Or, depending on the tax bracket, tax harvesting. There are many different types of things. In years past, I believe it was "We just hold on and we ride it through." Now, it's, "OK
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It's what it is. What can we do to change it? WM: What goals or challenges are you setting for 2023? BC: The end of the year is when we set our business development goals.
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With that comes the need to make some marketing decisions and get our voices heard. There is also the traditional way to grow business organically by referring people, which we do. Our group has an advisor who is a good communicator and he speaks to the media. We're also writing articles to help spread the word.
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How can we increase our visibility and engagement to create more lead generation? AG: I am most excited about looking at all the options and finding out what we can offer clients. We want to ensure that our clients get older and that we are able to assist them and communicate with them in a way that is most appropriate.
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So we are looking at ways to combine the best of financial planning and investment advice with a personal development aspect. We are also working to achieve our firm's growth goals. We have a way to scale it if needed
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You can identify some of these advisors to make sure you have a system that you can plug into and allow to work right away.