The traditional RIA business consists of four basic components: back-office functions, compliance, money management and sales. All of these functions can be outsourced to other firms. The best RIA firms spend 60-80% of their time in client-facing activities so they can drive growth. What RIAs need to decide is which functions to outsource to allow more time for client-facing work—and thus more opportunity for growth.
Mike Lover, Vice President of Process Improvement for Trust Company of America, reviewed some of the options in a recent Genius Session.
Back-office functions are easily outsourced, he says, but the cost of labor to do them is relatively low compared to the cost of outsourcing. Managing back-office functions in-house may be more cost effective, particularly if combined with effective technology systems that allow for greater scalability. Some RIAs choose to outsource compliance to vendors like RIA In A Box or through a partnership with a broker-dealer. Most, however, choose to manage compliance in-house and then consult other resources as needed. RIAs that are great at gathering assets but lack the resources to manage money may choose to outsource money management to a third party. Lover’s presentation was focused on RIAs who outsource their sales functions and use a Turnkey Asset Management Program (TAMP).
TAMPs got their start back in the 1980s, but they have really taken off in the last decade, according to BenefitsPro Magazine. Tiburon Strategic Advisors, a San Francisco-based financial consultancy, had 34 TAMPs serving 20,757 financial advisor clients, representing more than $145 billion in assets as of January—an increase of more than 900% since they first started in 1996. More than three-quarters of financial advisors using TAMPs earned net profits of more than $100,000 last year, according to Tiburon.
RIAs who sell through outside representatives have seen the number of accounts per representative, as well as the average account size, increase each of the last three years. The average number of accounts per rep increased from 29 in 2011 to 34 in 2013, while the average account size grew by more than 20% from $85,000 to $103,000. Representatives are delivering more book value as well. In 2011, the average rep was worth $2.16 million. In 2013, the average rep was worth just under $3 million. The top 25% of RIAs have reps who are achieving value of $6.25 million. How are the top RIAs achieving these results?
There are four qualities that differentiate the top RIAs.
Trust Company of America can help RIAs in these areas. TCA offers marketing support to help RIAs hone their message, as well as practice management support to ensure RIAs have the right staff.