More On Legal & Compliancefrom The Advisor's Professional Library
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- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
“Growth is essential,” says Philip Palaveev, president of Fusion Advisor Network, speaking to advisors at his firm’s National Conference in Las Vegas on Tuesday. Palaveev and Fusion CEO Stuart Silverman and Managing Director Barry Levy, who does the greatest card tricks, opened the conference on Monday.
Palaveev (left) and this editor presented views on industry trends and preview of the findings of the Q2 2010 Top Wealth Manager Quarterly Pulse, with data from the second quarter of 2010. The entire report will be published on AdvisorOne.com next week.
2010 has been a “schizophrenic” year, Palaveev noted, with a poor second quarter in which the Top Wealth Managers—which include many of the top registered investment advisors (RIAs) in the U.S.—struggled to hold on to assets. While assets were up on average for the first quarter, the second quarter was a struggle. Through the first half of the year, assets from new clients did not fully replace market performance (slightly down), and client distributions. In the third quarter, equity market performance should help boost assets.
Seize the Opportunities
Palaveev believes prospects are good for firms to selectively “add a partner,” or “buy or merge” on an opportunistic basis. He also spoke of an important “inflection point” regarding size of client assets.
While many firms are adding clients with more assets, there is a sweet spot for firms and a place where higher average assets under management (AUM) per client can diminish firms’ returns. A “$2 million client doesn’t require much more service than a $1 million client — but pays two times the fees” on the higher amount of assets, Palaveev notes; that’s very profitable. When you get to “$10 million in AUM per client, you don’t enjoy the best economics,” Palaveev cautions. Why? Aggressive pricing because of more competition for this larger average-size client, more services required, more management at the firms that serve these larger clients.
“Capture the recovery,” Palaveev implores — demonstrating with data from Moss Adams, where he had been a principal, that the firms that grew the fastest after the 2001-2003 downturn were the ones that “had people,” and had “capacity to jump on the opportunity” to bring in new clients and assets when times turned good again. The recovery in revenue for firms, Palaveev said, lags he actual recovery in markets.