Displaying items by tag: RIAs

(New York)

For many advisors, the idea of changing firms in the middle of the coronavirus pandemic might be the furthest thing from their minds. But the reality is that for many, this could be an ideal time to switch (or even a necessity) for a number of reasons. Firstly, many advisors feel under-supported by their firms during crises (of which this one is unprecedented), which may motivate them to switch associations. But additionally, because of the volatile to the market, recent valuations/production numbers might mean moving soon makes the most sense, as it will maximize the size of moving checks one can receive.

FINSUM: A lot of advisors seem to be worried about maintaining their employees and payroll given the big fall in fees.

(New York)

Advisors who might be thinking of moving—now may be the time. Big crises are often a catalyst for advisors changing firms. The reasons why are numerous. Some advisors grow unhappy with the support their current firm gives them during a hard period like this one. Others see a big drop in revenue and need the bonus check of signing with a new firm in order to keep their team intact. Others try to sell soon after a crisis hits because their valuation (based on AUM/production) will likely not be higher for years.

FINSUM: Generally speaking, one would think that there would be a lot of moves in the next several months. However, one issue right now is that advisors cannot have face-to-face meetings with their clients to take their temperature on a move. All that said, if you are considering a move, many firms are ready to cut checks.

(New York)

Many RIAs across the country are worried right now. With fee levels often tied to AUM, revenue seems likely to take a ~30% hit this year. That is enough to break many RIAs, especially those who were previously running only 10% profit margins. So how can RIAs cope? Firstly, those who have been very tight on budgets are in better shape. Those who were operating at 30% profit margins should be okay. A few of the key aspects to consider right now are: reaching out to vendors to “share the pain”, changing compensation structures towards lower fixed pay and more incentive-based pay, and switching to a quarterly budget, which will better align expenses and income.

FINSUM: We might go through a long period of lean times, so RIAs need to act fast to get their fixed costs under control.

(New York)

Ever since the announcement of the Schwab-TDA merger, RIAs have been nervous about their future with the combined custodian. TDA was known for working hard for smaller RIAs, whereas Schwab was not at all. Now, with the combined entity, RIAs are worried about being neglected, or dumped altogether. However, Schwab has just put out a public pledge, saying “When it comes to independent advisors, we’re all in … Today, over half of the firms we serve have under $100 million in AUM. You are the future of this industry”. Schwab also promised no AUM minimums or custody fees, saying they have “no intention to raise them. Because we believe that every firm of every size deserves world-class support”.

FINSUM: This was a more specific pledge, but it will likely do little to calm small RIAs.

New York)

Yesterday we ran a piece explaining the level of AUM advisors need to successfully breakaway (cheat sheet: $50m-$100m). Today, we wanted to hit on another key topic: what percentage of clients typically come with an advisor when they break away? Now, this obviously varies a great deal based on particular circumstances, but according to Kestra, the typical rate is 80% in their experience.

FINSUM: This is useful, but only to a point because many advisors will have a great deal of their assets concentrated in a small group of clients, meaning it is a fairly tight number of make or break accounts.