Philip Palaveev: ‘There Are No More Free Clients’

Advice industry is rapidly maturing, bringing challenges and opportunity

In a wide ranging interview with AdvisorOne on Thursday in advance of his presentation at MarketCounsel’s Member Summit 2012, Philip Palaveev, the Moss Adams and most recently Fusion Advisor Network alum, expanded on his announcement last week that he will start a consulting firm for “ensemble” practices. He also offered his insight on developing trends within the RIA industry.

Philip PalaveevWhen asked for the most prevalent trend this year, Palaveev (left) named “the process maturation of this industry.”

Palaveev compared the early stages of the industry to the Wild West.

“If you think about settlers on the Oregon Trail 200 years ago,” he began, “they went over the Cascade Mountains and down into the valley of what is today modern Seattle. They were able to simply stake a claim and the land was theirs. Try doing that today with all the roads and buildings and you’ll have a lot of upset people.”

The financial advice business operated in much the same manner, he continued. It was relatively easy for advisors to skate their claim with clients; no more.

“There are no more free clients,” Palaveev said. “I found it very telling yesterday when [Advizent’s] Charles Goldman said most of the competition for RIAs comes from other RIAs. It’s no longer the wirehouses.”

Consolidation, unsurprisingly, was another trend Palaveev saw for the rest of the year, driven by private equity and a desire for sophisticated advice from high-net-worth individuals and families.

“As we mature, we don’t know what the future will look like,” he explained. “While private equity is good for the industry in that it drives up valuations, it could end up being like the condominium boom in Florida. As fast as private-equity firms enter, they leave. We don’t want a business of empty neighborhoods and only 10 or 12 mega-RIAs.”

Comparing advice industry consolidation to that of the accounting business, he added that there will always be a place for smaller sole practitioners.

“We criticize smaller firms because they’re not scalable or whatever, but they really represent the heart and soul of the industry,” he said. “It’s all about what you’re trying to achieve. If you want complete control of your practice and a hand in everything, then the sole practitioner fulfills that need. If you want to build a business and be part of something bigger than yourself, than a team-oriented ensemble practice is the way to go.”

Palaveev concluded that too often, the industry focuses on “one problem after another,” but he was optimistic about the outlook for the industry as a whole.

“The guys yelling about how the sky is falling are usually selling helmets,” he said. “The average advisor makes as much as a dentist or surgeon. We have to be sure we’re respectful of that and don’t take our clients for granted.”

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