Some years ago, Jeff Montgomery, president of Austin, Texas-based TCG Group Holdings, worked for an RIA firm that was heavily into acquiring other RIA firms across the nation.
As a key member of the team evaluating potential acquisition targets, he often chose to attend the open client meetings these firms hosted by masquerading as a client. Wandering around and chatting with advisors and other staff members in this incognito way gave Montgomery a clearer insight into how these RIA firms worked, the way in which they managed their people and cultivated a culture, and whether these would gel with those of his rollup firm.
“Saying I was a client helped me get a sense of how the employees of a particular RIA firm felt about their firm,” Montgomery said. “It gave me an idea of that firm’s client base, its key employees and, most importantly, I got a view into its culture.”
That was valuable since in most M&A deals, company culture and personnel tend to play a secondary role to the financials, Montgomery said. While there’s no taking away from the importance of those numbers, of course, deals that look great on paper can ultimately fail because of a lack of attention to human capital.
Human capital is critical to a business’s success, and can contribute to its failure if not managed properly — if companies are not able to figure out how to make a difference with the human beings that constitute their business and how to make a difference for those human beings.
In today’s world, where so many businesses operate globally and demographics are changing rapidly, these parameters have become even more important for companies, financial planning firms included.
Get the Right People on the Bus
Today, businesses have to make every effort to recruit and retain the right kind of talent, said Max Blumberg, founder of London-based Blumberg Partnership, a global salesforce effectiveness and analytical talent management company. Further, making sure that this human capital can contribute value to an organization means hitting the right notes with respect to diversity.
By diversity, Blumberg means successful firms must go beyond the traditional gender, race, ethnicity and sexual orientation metrics to include diverse skill sets, educational backgrounds and life experiences. That broad level of diversity helps create a culture in which employees of a business can reach their full potential.
A business must foster an atmosphere that allows talent to thrive at the individual level and both incentivize and compensate that talent in such a way as to ensure that it contributes toward the success of the enterprise as a whole.
Unfortunately, the financial advisory business still lacks both experience and foresight in this area.
That’s normal, to a certain extent, said Michael Roch, global practice leader at Internal Consulting Group in London, since the nature of the RIA business is such that individual clients are tied to individual advisors. This naturally lends itself to a business model that’s centered on what each advisor-client relationship generates, as opposed to the outcomes of a business as a whole.
Yet digitization and margin pressure have changed this reality, according to Roch, and are forcing many RIA firms to set up business models that serve clients collectively with the understanding that this approach does not take away the autonomy that independent advisors prize and fear losing as a firm grows. (See the December 2016 cover story for more on how margin pressure is affecting financial services firms.)
In fact, Roch says that more firms are realizing that bringing their advisory force together in a cohesive manner encourages collaboration and harnesses their full potential as a collective. It also encourages autonomy, mastery and organizational purpose as important factors in not just serving clients, but in maximizing their own potential as advisors.
“The idea is to create communities where people can become better at what they do but still operate autonomously,” Roch said. “In advisory firms, the objective is to make advisors understand that while they don’t need to share their relationships, sharing client strategies is beneficial overall; if a firm can institutionalize this, it goes a long way toward future performance.”
The more that advisory firms can devote resources toward creating more collaborative business models, he argued, the more they will add value by harnessing the full potential of their human capital.
“Automation, the addition of new products, service innovation, among [other things], take place behind the scenes. The more a firm puts resources toward these measures, the better the outcome for the business, for its advisors and, ultimately, for the clients,” Roch said.
Ultimately, though, the pressure to innovate and transform will come from an ever-changing world, one driven largely by demographics and shifting demands from society regarding financial planning and planners (See “Discerning Different Needs” sidebar, page 26).
Connect, Not Collect
How to capture the best that diversity has to offer varies from business to business, but it is a key priority for many RIAs and asset management firms, including Chicago-based Ariel Investments.
For her part, Rupal Bhansali, chief investment officer and portfolio manager of Ariel’s international and global equity strategies in New York, looks for individuals who can “connect” rather than “collect” information.
Ariel invests in companies all over the world and Bhansali’s team comprises analysts who have both fundamental equity research experience and deep domain expertise in various industries.
But as both a “portfolio and talent” manager, Bhansali has increasingly placed a great deal of importance on a more esoteric quality: acumen, which adds alpha and is crucial, she said, to “connecting information.”
In today’s world, where information flows 24/7 and is accessible to anyone, from any device, anywhere, collecting it is almost a moot endeavor.
“Information is everywhere and readily available, and I believe that information that is readily available has no value,” Bhansali said. “Our job is to generate value and we do that by interpreting readily available information.”
Bhansali and her team have been operating this way for close to 20 years.
Back in 1999, for example, when they saw a full-page ad taken out in the newspaper by AT&T announcing nationwide free roaming, “we read that as the death of just about every single long-distance phone company. Being able to interpret information and to connect it means that as investors, we can avoid businesses that will suffer.”