This week, Financial Advisor IQ presents a Special Report on RIA Best Practices. Each day we will take a close look at a different aspect of running an RIA, offering well-honed tactics from industry leaders. This is part four.

Experts in the field agree there’s no single best way to structure an RIA practice. At the same time, they recognize that client service must be the standard around which the practice is built.

Whatever structure the principals at an RIA firm decide to employ, it has to fit their business model, says Larry Miles, principal at AdvicePeriod. “You have to think of everything from risk management to execution and process,” he says. “To me, it all starts with the client. What structure and organization are going to produce the best experience for the client? If you start and end with that, you’ll find the right direction.”

Danny Sarch
Danny Sarch, CEO at Leitner Sarch Consultants, says leaders of RIAs must recognize their strengths and weaknesses and then figure out structure from there. He says firms must determine whether their advisors will adhere to a single investment philosophy. Additionally, he says RIAs have to decide whether individual advisors will have their own books of clients, tended to by their teams, or if the clients will belong to the entire RIA. Some firms are run by an “alpha dog” who makes all the big decisions, while others are run by a team with different areas of expertise who make decisions collectively.

“The only absolute right is that you must have defined roles where everyone knows what their job is and what they are good at,” Sarch says. “[The leaders] need to hire and complement themselves with people who can do the things they’re not good at.”

For example, if there is an advisor who excels at dealing face-to-face with clients, have that advisor be in charge of client touchpoints. If an advisor excels at money management and financial planning, let them handle that aspect of the business. And if one of the leaders excels at HR or marketing, let them handle those areas. Otherwise, you have to hire someone, Sarch says.

“In a perfect world you try to make sure the person good at bringing in accounts is bringing in accounts and the person good at managing money is managing the money,” Sarch says.

“To me, it all starts with the client. What structure and organization are going to produce the best experience for the client? If you start and end with that, you’ll find the right direction.”
Larry Miles
AdvicePeriod
It is important for RIAs to remember they can always hire for the functions they’re not good at, Miles says. “If you founded your business because you love financial planning, you can do that,” he says. “I think the most aware and conscious advisors are humble enough to know they can’t do everything, and they’ll hire for what they’re not good at. If you want a lifestyle practice, you can be the chief cook and bottle washer. But if you want to run a real business, you need professional management.”

From the beginning, RIAs need to decide whether they are going to focus on money management or whether they will provide “soup-to-nuts” services such as tax management and estate planning. A pure money manager won’t need as robust customer service as an RIA with more offerings, Sarch says.

Ultimately, an RIA has to have a plan for growth from the beginning to ensure that the firm is structured properly and operates in a way that best serves clients. “You need to have roles that allow people to grow in the profession,” Sarch says. “You can’t look at people the same way you look at a tool. They do — and are good at — different things. People are flawed and capable human beings who grow. The best RIAs allow people to grow into different roles so that the business can continue to thrive.”

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