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Even the most elite advisors get “stuck” by “unchallenged beliefs”—but the good news is, there’s a way to break free.
In the last two years, we’ve seen more of the industry’s top teams than ever before head for the exits in search of opportunities that will allow them to better serve clients, have greater investment flexibility and more freedom to customize the way they run their businesses. Still, the absolute biggest producers are often reluctant to disrupt the status quo even when they are terribly frustrated and know there could be a better way to grow their empire.
What stops them?
Surely, there is plenty at stake for any advisor considering a move—and much more so for an elite team that is at the top of the food chain. They are well resourced and know how to get things done and may even get significant client referrals from their firms. And, generally speaking, the thought of moving what is likely a behemoth infrastructure is daunting to say the least.Certainly, most any advisor considering a change is concerned about brand cachet, platform, and upsetting the applecart. But it’s this unchallenged belief that often stops the biggest producers in their tracks:“No firm is going to be willing to write a deal big enough to get us interested. We’ve priced ourselves out of the market.” And many remain trapped in this belief—never peering over the walls around them.
What moves them?
There are certainly some firms that would be scared off by the notion of having to write a massive check, no matter how interested they would be in landing a team managing mega-billions in assets. And in the case of the biggest producers, that could mean $30–40mm or more in cash upfront plus at least that much on the back end. This is surely understandable: From a firm’s perspective, the risk of getting it wrong can be greater than the reward and so, very often, firms will take themselves out of the bidding process before discussions get too far.That said, in today’s much expanded landscape, where the waterfall of options for the most sophisticated businesses has never been more robust, there are plenty of firms willing to go all-in to land the best and the brightest in the world of wealth management. Undaunted by the size of the prospective recruiting package a team of this caliber would demand, these firms are nimble and entrepreneurial—recognizing that taking smart and calculated risks is often the best way to move the needle significantly. For instance, firms like First Republic Wealth Management and Rockefeller Capital Management, well-capitalized large RIAs built as Multi-Family Offices (MFOs), and blue-chip private equity firms are in it to win it. And in certain markets and at certain times, Morgan Stanley, UBS and Merrill Lynch would be eager suitors as well.So for uber-teams that are interested in capturing the attention of any one of these firms, they must be able to prove that their business is of the utmost quality, is highly portable, and that they are in major growth mode. And more importantly the team must have well-managed expectations—because the way in which any of these firms will value them will be based entirely on “replicable” revenue. This means that if a team is generating $20mm in annual revenue but has clients that are tied to their current firm or have assets that are locked up in private equity positions, their portability might be limited in the near term. Therefore, no firm will value them for deal purposes at the full $20mm, but instead will reward them on the back end once the assets are ultimately moved and revenue is growing.If the right price isn’t to be found by an outside firm, we’ve seen many multi-billion dollar teams choose to build their own Multi-Family Offices, thereby betting it all on their own growth and ability to maximize enterprise value.
What should drive decisions?
From where I sit, the only criteria for determining if team’s business is best served by the status quo or can be better served elsewhere is in the answers to these questions:
- Are we limited by our firm’s policies?
- Are there things we would like to do for our clients but can’t?
- Are there investment opportunities we would like to take advantage of but can’t?
- Are we forced to pay out of pocket for too much of our support costs?
- Are we giving up more of the revenue that we are generating than we should be?
- Are we restricted in our growth potential?
- Are we unhappy?
- If “yes” is the dominant answer to the above questions, then exploring your options may allow you to move beyond assumptions that make your team feel stuck and limited in its ability to grow the business and best serve clients. If on the other hand, you feel well served, then staying the course certainly offers the path of least resistance.Regardless of what path you choose, do so with an open mind—and allow yourself to challenge your beliefs and break free from any that may not be optimal for you or your clients.
Related: How Financial Advisors Can Protect Themselves in a Compliance-Driven Brokerage World