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Mark Tibergien's Blueprint for RIAs

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During the recent Pershing RIA Symposium in Chicago, we spoke with thought leader Mark Tibergien, CEO of BNY Mellon’s Pershing Advisor Solutions. He discussed the “RIA-zation” of the business, key challenges going forward and what’s next on the horizon for RIAs.

The good news is the business will continue to grow, he believes. Tibergien says that after the financial crisis of 2008 to 2010, “People woke up and said, ‘I need to trust my financial professional. I need somebody who is acting on my behalf, and not acting on their firm’s behalf.’ So they started to seek out fiduciary advisors to work with.”

They personally saw this shift at BNY Mellon Pershing, he says, which today holds $33 trillion in assets globally and is the largest custodian in the world. “In 2010, Pershing had $53 billion of fiduciary assets on its platform,” Tibergien says. “Today we have almost $650 billion.” Much of that growth, he says, came from individual advisory firms, but also from “independent broker-dealers who created corporate RIAs to provide the same service.”

Tibergien says when looking at the market, “you can see this evolution toward a fiduciary model, regardless of DOL’s legislation or best-interest contract. It’s behavior, not rules, that’s changing the way in which [RIAs] think, because they have to engage clients differently.” He points to a recent Cerulli survey, which found that by 2020, the RIA segment of the retail financial services business will be 30% of the marketplace. Today it’s about 21%.

He also refers to another study that revealed there are more employees who are advisors than principals who are advisors.

“The reason that’s significant is because in many respects, the RIA model is replacing the elements of the independent contractor broker-dealer,” Tibergien says. “So today there are over 650 RIA firms that have over $1 billion of assets under management. And a number of them have over $5 billion, and some have over $10 billion [in AUM].”

Is that wealth due to new money sloshing around in the markets? Tibergien says he’s not sure that can be directly linked to RIA business growth, but he believes it contributed to the growth of financial services. “To not be in the financial services business, you’re missing an opportunity. There’s a reason there are so many private equity firms that are investing in broker-dealers and RIAs,” he says.

He does believe there could be potential disruptors to the business, such as regulation that has unintended consequences; he says the RIA business needs a consolidated and stronger voice in Washington.

Storm Clouds Ahead Of course, a key challenge in the industry is the talent shortage, and Tibergien says it has been “for a long time.” But he’s also concerned about the age, gender and ethnic demographics of the business. He noted that only 1.5% of certified financial planners are African-American, and only 8% are people of color. Further, only 23% are women.

“So you look at the diversity and it doesn’t match up to the population; that doesn’t make sense,” he says. “If the whole power dynamic has shifted to relationships and you don’t have somebody that represents that gender or that race at the table, you’re kind of at a disadvantage in the marketplace.”

Add to that the number of advisors leaving the business, either through retirement or death. “It’s acute. So you have one dynamic where there is growth in wealth and a growth in need, but there’s not a growth in the population to service them.”

He notes the many positives of being an RIA, including independence, money and helping people navigate through financial and lifestyle choices, make it a “feel-good job.” However, “We have many good advisors, [but] we don’t have many good employers. They don’t know how to hire, develop and shape professionals. Founding a company is not the same thing as leading a business.”

He also is concerned about younger advisors who have never experienced a serious down-market cycle. ”We’ve been on a 10-year bull run, and whenever these kinds of events occur you have to be wary about how people are managing risk, how they are managing uncertainties. It’s one of those potential [market drop] events that could be damaging for the business,” he says.

Looking Forward Tibergien says that the business has moved from “investment forward” to “planning forward,” but the next phase will be “experience forward,” meaning RIAs will work with clients on how they enjoy their experience. He mentions one RIA in Florida with several wealthy clients who have a common interest in luxury travel, so the RIA has hired a concierge to help their clients make travel choices.

“We’re [also] going to see an emergence of large national RIA firms just like there are large brokerage firms,” Tibergien says. That will include “super regional” firms.

“I’m not saying the solo practitioner is going away, but the nature of the business really requires more of a team approach, and more of a career path and more continuity built into the business. And frankly, from a fiduciary standpoint, this is our obligation to our clients to ensure that if something happens to [the RIA], nothing will happen [to the client],” he says. He also sees that the key for success for RIAs will be to “remain relevant.”

“Looking forward, the supply/demand equation makes the advisory business very compelling,” he says. “[But] complacency with which most advisory firm leaders are thinking about their business, thinking about the continuity of their enterprise, thinking about their strategy and relevance, is going to put individual firms in peril over the next 10–15 years.”

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Ginger Szala is executive managing editor of Investment Advisor. She can be reached at [email protected]