A Pitch to Small Indie Advisors: Serve Your Clients, and We'll Provide the Tools

After Prescott started at Lehman Bros., in 1987 he cofounded Mainstay Capital Markets Consultants, which provides the industry with regulatory services. By 2010, he and his partner had launched Advisor Services Network.

In the interview, Prescott discusses what he sees as a major change indeed in the advice space. “The trend is the movement toward the investment advisor side where advisors are fiduciaries to serve their clients’ needs and not to sell products,” he maintains.

“There’s a lot of money chasing this industry,” he says, citing private equity firms, aggregators, rollups and others.

Here are highlights of our conversation:

THINKADVISOR: So many changes have been occurring in the advisory space. What’s a particularly significant one?

TOM PRESCOTT: The trend is the movement toward the [investment] advisor side, where advisors are fiduciaries to serve their clients’ needs and not to sell products.

That channel is more homogeneous with the fiduciary duty clients want.

There are multiple offerings within it: rollups, aggregators, firms like us to serve advisors who want to maintain their independence.

How fast is your sub-segment growing?

When we started Advisory Services Network in 2010, there were a handful of shops like us. Over the last 15 years, that [sector] has exploded. It’s the growing piece of the industry.

What do you see that augurs the future of the financial advisory space?

There’s a lot of money chasing this industry: private equity, rollups, firms that are buying practices. You see the big broker-dealers starting their own advisory firms so they don’t lose advisors — they’re trying to service them from within.

For example, LPL Financial and Private Client Services in Louisville, Kentucky.

You set out to help underserved smaller practices. Are you sticking with that target advisor or expanding to bigger practices?

We’re getting larger practices calling and looking to join us. But we built this firm to serve the $300 million or $400 million advisor.

We’re currently involved with several advisors who are significantly north of that. But [generally] larger advisors want to be totally on their own or sell to one of the big aggregators.

Why would they want to sell?

Because the cost of doing business — including software and [staffing] — has gone up exponentially across the board. And it’s harder to compete unless you’re able to enjoy economies of scale.

Why do advisors want to join your network?

Most of our reps ... come from the independent broker-dealer channel. The main reason they join us is that they want to be IA [investment advisor] -owned.

But [some] don’t want to give up their broker-dealer relationship.

How do you help them with that?

We don’t own a broker-dealer, but we have relationships with [some] for advisors who wish to retain their broker-dealer license while being registered with us, an RIA. [Most of the firm's IARs choose to be investment advisors only and are not dually registered.]

What benefits are these advisors mainly seeking?

A better level of service and a better quality of relationship with their clients that’s fiduciary driven.

They don’t want to sell products. They don’t want to be limited by the lowest common denominator of investments they offer and the custodian they utilize.

Advisors who join us want to use their own brand. So their brand would read, [hypothetically], “John Doe Wealth Management, A Member of Advisory Services Network.”

What’s the bottom line for your clients?

Being able to give the advisors a sizable chunk of their day back is our secret sauce.

If you’re spending 55% of the day on administrative and compliance duties and we can lighten those duties, thereby letting you spend more time managing your clients’ money, you’ll be a much more successful advisor.

By what means do you reduce financial advisors’ administrative and compliance work?

It’s their job to handle the clients. It’s our job to support the advisors with all the necessary tools.

We bring the major custodians, the operations, risk management software — all the infrastructure they’d have to buy if they created their own advisory.

We manage economies of scale and have a very high-end offering with a significantly high payout.

What’s the payout?

Roughly 90%, depending on what the advisor charges, minus our fee for being part of ASN.

What’s the biggest challenge to advisors today?

There are several.

For the last four years, we had a very active regulatory environment. The country has just had a change of administration. We have yet to see what the new one will bring.

But there are always new rules coming out that you need to be compliant with, and you have to do it in a way that’s both efficient for your operation and regulatorily sound.

Another challenge is how to continue to grow and manage your infrastructure so that it maintains your profit margins.

And then there are new products being introduced regularly on which you have to do due diligence.

How is your firm positioning itself for the future?

We’re continuing to bring in new software. We have paperless scanning software so that the advisor can work from wherever they want: They can spend the winter in Florida and the summer in New England.

We’re expanding our custodial relationships. We’re working on a succession plan offering and an M&A offering within the ASN family of advisors.

So if an advisor wants to ultimately retire or sell their practice, we have the capability to help them.

Our job is to make sure the advisors have every benefit they wouldn’t have at every other firm.