The RIA firm owner knew he had a problem. Team morale felt inconsistent, costs were up, margin squeeze and regulatory demands were constantly increasing, and everything felt more complicated in the always-on digital world.
While some on his team were eager to accept new challenges and embrace change, others seemed to be discouraged and even scared. He felt tired and a little more than grumpy as it became clear that the wealth management platform he’d selected — after months of painstaking due diligence — was not the be-all/end-all promised in the cacophony of fintech marketing hype.
The installation had been a disruption to the business. It wasn't the installation team's fault so much as the process of implementing change and the varied degree of buy-in and cooperation among team members.
While he had expected the increased spending on technology to improve margins, he saw now that it would be a much longer timeframe than originally expected.
If you are nodding your head — or feeling similar pain in your business — take heart. Most independent financial advisors share a common set of experiences, challenges and opportunities associated with trying to improve their firm, based upon changing industry partners and vendors. Sometimes the experiences are good; other times there is a bit of trial and error.
For instance, some firms are on their second or third CRM or financial planning tool over a relatively short period of time. When asked, “Why have you changed?” often the response “It just didn't work for us, it wasn't a good fit” indicates that maybe they were not crystal clear up front about which problems they were trying to solve and capabilities they wanted to add.
Drivers of Change
Typically, there are two primary reasons advisory firms will consider making a change. The first is externally focused rationale: They feel they are not achieving as much as they could and wonder if answers can be found by changing their custodial, broker-dealer, marketing or technology partners.
The second reason is internally focused: They question their internal effectiveness and systems, their team roles and abilities, and how the clientele perceives their service offering, fee structure and investment performance.
As with most important missions, it is essential to start with this simple, one-word question: “Why?” That will lead you to answering the “What are we trying to solve?” question. Typically, the problem will fall into one or more of these three categories:
1. Growth: We believe that partners and vendors that align with our direction and service offering will better support our opportunities for growth.
2. Efficiency and cost control: We are trying to improve efficiency and believe those efforts will increase capacity and time savings, and will eliminate the duplication of effort and cost.
3. Capability and commitment to clients: We are trying to enhance capabilities that will raise the level and delivery of our client experience.
There may be other reasons, but partner- and vendor-change decisions typically fall into those three categories. If you are clear about the problem you are trying to solve, then you can more easily shop the vendors and tools that are out there. Looking through that lens will really help.
On the other side of that — whether it is vendors broadly, fintech firms, TAMPs or custodians — RIAs are bombarded with choices. A lot of vendors take a one-size-fits-all, everything-is-integrated, just-buy-from-us-and-you-can-eliminate-everything-else-you-are-doing-and-life-will-be-great approach.
While we, the authors, are not challenging specific companies that have gone out with that message, we would say that the advisor experience does not always match up with the marketing hype coming from these firms.
To that point, we recently participated in a call between a firm researching their decision for a new planning tool, and a representative providing a demo. His consultative approach and clear answers created a refreshing experience, and he was a tremendous help in evaluating the RIA's options.
Diagnose, Plan Up Front
We find it helpful to rely upon a defined process when considering a change in vendor relationships or tools you are using in your business, and importantly, creating the process before engaging with the vendors. Be clear about your needs, budget, integration requirements, etc. We all know that if we go grocery shopping while hungry without a list, bad things happen in terms of budget and diet.
As an example, a firm in Fort Worth, Texas, has successfully made significant changes by following a process in which it first identifies its purpose and ideal outcomes before considering any changes to what it affectionately calls its “strategic partners.”
Then the team schedules meetings with a short list of new potential partners in a specific category and provides a written copy of its purpose and ideal outcomes to all parties in advance, so they are prepared for an effective meeting.
From these meetings, next steps are more easily identified until the firm has confidence in a final decision. The final decision can range from improving utilization of a current partner or selecting a new partner.
Another important consideration: How will you measure the effectiveness of this change? For example, if you decide to spend an additional $50,000 a year on technology or to replace your CRM, what do you think is going to happen, beyond just the generalities of, “Oh, things are doing to get better,” or “It is going to be easier to do this or that”?
Ultimately, do you want to create capacity? Preserve or expand operating margin? Accelerate growth? Reduce cost?
Be Accountable for the Decision
Assume you had to present this to a management committee or your board of directors. You might say, “I’m going to spend fifty grand for the following reasons and here's the return I expect to get back on that investment.”
Would your board approve? More importantly, will you be able to go back and report on what you’ve spent, saying: “Here's how the implementation went. Here's what we are getting back in terms of our return on investment. Here is what we are going to replace.”
Going through that exercise, even as a small firm, and having the discipline to say, “Here's what this should actually mean to my firm and here's how I’m going to measure it,” and using that project-management perspective, are really good habits to get into.
Also, by doing this up front you have something to compare to what the vendor is saying it is going to deliver. You can talk to the vendor's referrals and ask, “Did this actually happen?” That will help a lot with your vendor due diligence decisions.
The Human Factor
The human factor can be your greatest advantage or, if unattended, can create your biggest problems. You will need buy-in, cooperation and even a dose of enthusiasm to successfully adopt new partners and tools. Once a new decision is made, the key is to build a transition plan that addresses communication, training, timelines and outcomes.
A good transition plan will alleviate anxieties for those resistant to change or worried about how the change will impact their future and will help everyone see the long-term benefit for the company, the clientele and the team.
For example, being the person who knew how to locate, complete and send in the right form is no longer valuable when there are automated imaging and workflow systems available; we can bundle the forms electronically and don't need that person to go find the forms for everybody.
Because their job is threatened, they tend to push back on the things that would create more opportunity in the firm and, by definition, allow everybody to grow; but it's very hard for people in those roles to share the vision, and they may need some individual coaching to reframe their mindset for a better future.
Ultimately, the business leaders do want their team to accept change and create value. A good transition plan and communication across the team will depend on the clarity you created initially about the purpose and ideal outcomes for this change. If you put the effort in there, the decision process and transition plan will flow more easily.
In general, firms that have a healthy culture have the happiest team members and can, therefore, implement change more easily. Some of the flagpoles of a healthy culture are: a compensation philosophy that connects the team to the firm's success; confidence that decisions will consistently align with the goals and values of the firm; accountability is expected and flexibility is provided.
If you are having trouble with these because you are too busy or this is not your wheelhouse, a good practice management coach can help.
1. Do your diagnostics up front. Have a clear vision. Know in advance how you will measure success. What end result is desired? Why are you doing this? Use a peer group or a professional strategy consultant to help you think it through. Diagnostics include financial considerations.
2. Communicate the vision to everyone on your team. Get them excited about the mission and benefits to them. Think about those who might resist change. Will Suzie be worried her future is in jeopardy?
Technology is fantastic, but you must address the human side, too. Help those who get stuck by reminding them in subtle and direct ways how good the change will be — and how their role will evolve. A practice management coach can serve as a great rudder for any potentially disruptive change.
3. Create the right task force. On one piece of paper, answer the four or five most important questions that force you to think through the plan, beginning with the end in mind. If you are going to use people on your team, keep them working within their circles of strength — that way, they won't be drained by the experience. Don't expect miracles overnight.
Map out your plan and execute in stages. Use a checklist for the due diligence and RFP process. Don't be afraid to ask “dumb questions” during the vendor selection process — not everyone understands vendor jargon.
4. Follow a reasonable timeline, but allow for delays. Just like remodeling the kitchen in your home, unexpected difficulties and overruns could occur when remodeling your technology ecosystem. Avoid knee-jerk reactions. You want to get it right versus having to live with something that is not optimized for your firm.
If it's that big of a change, it probably took you years to get to this position so it's worth the time to get it right. Get some outside guidance to help you think about it critically so that you don't jump ahead and find yourself regretting decisions.
5. Consider unbundled solutions. Some well-meaning vendors decided they were going to select the best tools, integrate the tools and then make themselves “preferred partners” — and that you as an advisor would agree to adopt the bundle, which should fit everybody on your team.
This is where we see advisors spending the same dollars more than once, meaning they will buy a bundled package because it looks good and is a good deal, but they will only use two of the four components. They then pay somebody else for the other two.
This makes it hard to resolve issues when something goes wrong — it's really difficult for you or your IT staff to figure out which vendor is responsible for the problem. Anchor to a solution you love and build around it.
Having a clearly defined process can help you reduce needless costs and frustrations. No one wants to spend the same dollar twice. Follow this formula to plug the time-and-money drain.
--- Read Partner and Vendor Decisions: Do’s & Dont’s on ThinkAdvisor.
Matt Lynch is the managing partner of Strategy & Resources LLC, a financial services consulting firm; he can be reached at MLynch@strategyandresources.com.
Marty Miller is the founder of Clear Path Consulting; reach her at email@example.com.