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How a COO Can Benefit a Growing RIA

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Independent RIAs can derive benefits they may not have realized by leveraging a chief operating officer to manage day-to-day responsibilities.

So says the sixth in a series of industry reports from PFI Advisors, a firm that works with billion-dollar breakaway teams to establish their own RIAs. The report says that although RIAs generally regard COOs as cost centers and not revenue generators, leaving the management of ordinary activities to COOs frees up RIAs to focus on business development and client service.

The report “Exploring the Benefits of Professional Management for RIAs — A Deeper Look into Chief Operating Officers” profiles five billion-dollar RIA COOs and provides “real-life examples” of how those COOs “have allowed their respective RIAs to evolve and remain competitive.”

The report points out that as firms grow past $1 billion and start to aim at $10 billion, they “will need to incorporate both aggressive organic and inorganic growth strategies.” To do that, advisors need to maintain a level of service that continues to impress clients, and that means they need to maintain their back office and technology in a way that’s both robust and scalable — hence, the hiring of COOs.

The report cites Cerulli Associates pointing out that larger RIA enterprises require “institutionalization of processes, centralized staff support, specialized roles and well-defined organizational structure.” And that’s where professional management comes in, with COOs taking over the daily functions and freeing up RIAs to do what they do best.

To be successful, the report points out, COOs should have three areas of functional expertise: day-to-day administration of the firm, driving workflow improvements and managing human resources. The COO should be the go-to person for staff inquiries on operational and HR aspects, as well as keeping operations tied in with compliance.

The report also says COOs should oversee the firm’s technology infrastructure, including vendor management, as well as taking responsibility for recruiting, developing and retaining employees.

It also quotes Yosef Colish, managing director of Leah Yosef International Inc., saying, “Hiring the right COO is also critical for firms seeking growth through acquisition. The right COO will run the entire process, ensuring a smooth transition for not only clients, but the entire back office, understanding where there are synergies and where efforts are duplicative,” adding, “Have a leader who can run this process makes any transition a more palpable reality for both firms in an M&A transaction.”

— Check out Competition for Talent Is a Major Issue for RIAs on ThinkAdvisor.