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Skip Schweiss

Practice Management > Building Your Business

Do This Instead of Moving Up Market: Skip Schweiss

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The RIA industry has experienced tremendous growth over the past several decades, but its professionals risk losing relevance (and revenue) if RIA firms don’t find better ways to profitably deliver their services down market.

That warning was among the key points raised this week in a new discussion between ThinkAdvisor and Skip Schweiss, CEO of Sierra Investment Management in Santa Monica, California.

Schweiss is well-known in the RIA industry as the former president of TD Ameritrade Trust Co. and managing director of advisor advocacy for TD Ameritrade Institutional. He was also the 2021 president of the Financial Planning Association, a role he took on after a prior five-year stint as an FPA board member.

Schweiss says his current organization operates more as a tactical investment manager than a traditional advisory shop, as Sierra operates six of its own funds and delivers “lots of models” to RIAs using proprietary and outside funds.

As of early 2023, Sierra’s TAMP solutions are distributed under the Ocean Park name on both the Envestnet and Orion platforms, as well as on all the major independent broker-dealer platforms, including LPL Financial, Cambridge, Advisor Group and others.

According to Schweiss, the firm’s focus on serving RIA clients continues to give him a powerful lens into the ongoing trends and challenges affecting the work of fee-based financial planning professionals. As recounted in the Q&A dialogue below, Schweiss sees significant reason for optimism about the independent RIA industry’s future, but there are also major emerging obstacles that must be tackled with urgency.

In particular, RIA firms must work harder to ensure their unique value proposition of delivering advice in clients’ best interest continues to stand out in an increasingly complex and competitive financial services landscape. RIA leaders also have to ask tough questions about succession planning, sourcing more diverse talent and targeting the right base of clients, Schweiss says.

While the industry’s future looks bright, Schweiss warns, firm leaders who are failing to innovate and reconsider the client service status quo will have a hard time growing their businesses in the changing environment.

ThinkAdvisor: Can you remind us about your own professional path and how you have ended up at Sierra?

Schweiss: Yes, as some of your readers may recall, I served for a long time as a leader at Fiserv, working as the leader of their trust company in Denver. During my two decades at Fiserv, we built out a strong advisor custody business, and we also built out the retirement plan services business during that time.

Then, in 2007 or 2008, TD Ameritrade came along, and they wanted the advisory custody business to add to their scale. So Fiserv sold that business to TD Ameritrade, and I ended up transitioning and staying with the new TD Ameritrade entity in Denver.

I worked there for 12 years, and we did some great work servicing retirement plans and marketing our custody and support services to advisors. Typically, the advisors we supported were helping small businesses and their owners create retirement plans, and they were helping with all the other services advisors deliver to their individual and institutional clients.

The work was kind of ahead of its time, considering the emerging conversations that are happening today about distributing advisor-mediated retirement plans in the small-business marketplace. My personal view has always been that advisory professionals, and especially RIAs, are dramatically under-investing in this space. To this day, the small-business retirement plan space is dominated by insurance companies and broker-dealers.

Eventually, TD Ameritrade Institutional was itself acquired by Charles Schwab, and I left the business as a result of that change. It’s something that happens in this space when big acquisitions occur.

I was then able to really focus on serving as the FPA president, and I was eventually contacted by Dave Wright and Ken Sleeper, who are Sierra’s founders. They had been clients for 30 years or so, so they asked me what I was planning for my next chapter.

I was 58 at the time that Dave and Ken called me, and I had the thought that I wanted to work for a smaller, more entrepreneurial type of firm. Ultimately I went to work for Sierra as CEO in the fall of 2021, and it’s been a great ride so far.

How do you view the status of the RIA industry in 2023? What are the big challenges you see for firm leaders?

There is a lot I could point to. For example, I hear a lot about succession planning discussions and challenges. The surveys I see show that only something like one-third of RIA firms currently have a formal succession plan in place, and this is despite the fact that we have basically the same number of certified financial planners who are over age 70 as under age 30.

That’s clearly a challenge and it’s not going away. Frankly, there are not enough young people entering the business, and that concerns me.

There are a variety of causes we can point to, including a misunderstanding of what it actually can mean to work in financial services. We need to make sure young people understand that you don’t need to just be a math guru or a sales master to have a space in this industry.

When I was at TD for all those years, we put a lot of effort and resources into the sponsorship of scholarships in financial planning programs, and we’d go out there and try to talk to a lot of college groups about careers in this space. So often, we heard people say they just didn’t want to “work for Wall Street.”

So, financial professionals today are still getting painted by a broad brush in many cases, and that’s a problem. We need to get the message across that there is a huge number of jobs and different ways to get involved in this industry.

My view is that many young people really prize this idea of helping others and making a difference. We need to get the message across that the advisory space allows people to do this, while earning a good living for their family.

What would you say are the biggest client service challenges and business development opportunities for RIAs in 2023 and beyond?  

Well, first of all, I think we should highlight the fact that the assets under management fee model has worked really well for firms in the last decade or more. It’s attractive because clients don’t have to write a check to pay for your services, nor are they compensating you via commissions. You can charge a transparent and reasonable fee that comes right out of the portfolio.

This model has proven to be very efficient and scalable for the advisory firms, but the problem is that it is limited in terms of the client size a truly independent advisor can effectively serve. The AUM model, for example, typically doesn’t let the firm go down to the $100,000 or $75,000 accounts, and we know there are just so many accounts of that size in the marketplace today.

These folks are often younger, and they are being served by the brokerage community or in the context of institutional retirement plans. What I worry about is that these people, who are set to grow their wealth and inherit a lot of wealth in the coming decades, will simply not see the RIA industry as a source of advice and guidance in the future.

My point of view is that firm leaders need to think further ahead and extrapolate where these people are going to be in 10 or 15 years. By the time that 35-year-old with $75,000 in their IRA is 45 or 50, their wealth and their needs are going to be much more substantial, and they can become a really good core client for the RIA firm.

How can an RIA firm move in this direction?

One thing they can do is learn from the success of the bigger firms like Charles Schwab and Vanguard.

Their approach to serving accounts down market is more of a hybrid approach. The portfolio and investment part is fairly automated and they just direct people who are focused on growing their wealth into a low-cost portfolio that can be managed very efficiently with technology. But the real value they deliver is that they also make CFP experts available to discuss the client’s broader financial picture and plan.

This speaks to the challenge I already mentioned. Younger people who are being well served by a Schwab or a Vanguard are developing a tremendous amount of brand loyalty, and they value the experiential give and take from these firms. In the future, they just might not see the need to move to work with a more traditional full-service RIA firm.

This dynamic should concern all RIA industry leaders, in my opinion.

Do you see the growth of the small-business 401(k) plan marketplace as an important factor here?

Definitely. It’s actually something I used to preach to advisors all the time: Don’t sleep on the small-business 401(k) plan space.

When you are in the community and helping both business owners and their workers get their retirement savings on track, you can become the only advisor these people know and trust. If you go into these workplaces even just one or twice a year and you give helpful seminars on investing and financial wellness, it will pay dividends.

Again, the participant might not meet your minimum to take them on as a wealth management client today, but that can change in the future. Many people will get an inheritance, or they will eventually leave the company after building their wealth, and they will think of doing a rollover. Well, they are going to look for help from the person they already know and trust. That can either be their retirement plan recordkeeper or it can be an RIA serving the plan.

Firms like Fidelity are proving this is true. They are in this space and they know there are all kinds of spinoff benefits to serving retirement plans. The best way to summarize the opportunity is to understand that you are not getting into the 401(k) business just to be in the 401(k) business. Yes, you are doing good work for the plan participants, but it’s the individual wealth opportunity and the rollovers that most benefit the firm.

It’s the same reason why you see Carson Group teaming up with Vestwell to be able to seamlessly service 401(k) plans.

Do you worry about a pending retirement crisis?

Yes I do, and that’s another reason I encourage RIAs to go down market and to serve 401(k) plans.

I am troubled that consumers just don’t have enough to retire on. If you pick out a middle-of-the-road consumer who is, say, 60 years old, they just aren’t in great shape. They are paying their bills, and they might not have a lot of debt, but that is still a far cry from being retirement ready.

What is really concerning to me is the lack of awareness. The typical pre-retiree out there might have $200,000 or more in their 401(k) account. That’s a good resource to have, of course, but it also causes such a sense of overconfidence.

They might see this as a lifetime nest egg, but those of us in the planning industry know that this amount of wealth does not translate to a significant amount of sustainable retirement income. You can only draw maybe $8,000 per year from this account without quickly depleting it. Even after you layer that on top of $20,000 or $30,000 in anticipate yearly Social Security guarantees, it’s just not enough for a dignified retirement.

Sure, it’s enough to scrape by, but so many people are facing down a dramatic and difficult lifestyle adjustment in retirement. Meanwhile, this is supposed to represent the culmination of your working career.

I believe that, as a profession, we have an obligation to step up and help solve this problem, and that starts by moving our services further down market. It think that’s essential for the future. If we can get people on a better track at 30 or 35, it can make a huge difference for their retirement at age 70.

Pictured: Skip Schweiss