Mark Tibergien, CEO of Advisor Solutions at BNY Mellon | Pershing, has a message for RIA firms that want to grow in a market increasingly dominated by $1 billion-plus AUM firms: Share the wealth.
More specifically, Tibergien, a longtime contributor to Investment Advisor magazine, recommends that RIA firms share the wealth with their own employees to attract and retain “good people,” because in the long run that “wealth will accrue to you.”
The biggest risks RIA firms face are keeping employees and clients, according to Tibergien, who spoke in a webinar with David DeVoe, founder of DeVoe & Co., which advises RIA firms on mergers and acquisitions as well as valuation. The webinar was a preview of the DeVoe M&A + Succession Summit set for late May in New York City.
“People who are attracted to the business have to feel empowered. When they don’t they will go somewhere else,” Tibergien said. “Unfortunately, too many firm founders have a death grip on the business.”
They don’t look to their own employees when they want to sell the business, which would more easily insure its continuation, and even if they did, their employees may not be able to afford it, especially if the firm has assets of $1 billion or more, said Tibergien and DeVoe.
“Firms should insure that the people who work there have an opportunity for equity growth,” said DeVoe. “If not, it’s likely the business won’t last a generation.” DeVoe noted that 70% of advisory firms have no succession plan.
Tibergien also recommended that RIA firms add more diversity to their staffs. “Without an effort to attract more diverse talent a firm could last for 1.5 generations or a few months.”
He expects the number of RIA firms with $1 billion or more will continue to grow, leading eventually to 10 national firms, 200 to 300 “super regional firms” and large local firms as the broader industry shifts more from brokerage to advisory services and from a product focus to client focus.
According to Cerulli, close to 700 RIAs with $1 billion or more in assets — or less than 4% in the industry — control about 60% of client assets.
As the number of big firms grows, there is “high probability that RIAs will be required to hold capital in reserves like broker-dealers” because the bigger they grow the riskier they become, said Tibergien.
Big firms also need to develop the infrastructure to handle their growth. Failing to do so also risks turnover in employees and clients, according to Tibergien. “Firms need to recognize the different stages of growth.”
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