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As the RIA industry transitions from its first-generation founders, the second-generation leaders must look back at the risks they inherit in their businesses. Here is a checklist for five key risk assessments.
1. Is your tech up to date?
According to a study by research consultant Aite Partners, RIA firms that harness tech earn an extra $100,000 in annual revenues compared to their less tech-savvy peers – and their average client has nearly twice the investable assets. Another industry report found that 60% of firms using four or more systems experienced 8% higher AUM growth on average, as well as a 10% increase in their client bases.
More integration means more time spent on client services and prospecting: Tech-integrated firms spend only about one-third of total staff time on business operations and processes, compared with 50% of staff time for other advisors.
2. What if your most valuable asset walks out the door every night?
Could you handle a quarter of your workforce jumping ship? Business research firm Gartner reports that 26.6% of the global workforce (and nearly 25% in the U.S.) is actively seeking another job. In a competitive job market, independent advisors need to work hard to attract and retain top talent.
Internal mobility can boost employee willingness to stay with their current companies by up to 33%, according to IBM.Beyond defining development and career pathing for your team, revisit your employee benefits – work-life balance, paid time off, work-from-home flexibility, parental leave, etc. Also, do you have a plan in place to handle employee complaints or conflicts?
Finally, in terms of recruitment, how are you managing your online presence and reputation? This is your first chance to make an impression on top-level recruits and get the right people in the right positions from the start.
3. When was the last time you revisited your business continuity plan?
Working out contingencies for catastrophic “what-if” scenarios isn’t just an intellectual exercise; it’s essential business practice. According to the Federal Emergency Management Agency (FEMA), 90% of small companies never recover from disasters if they don’t reopen in the first five days – and 40–60% of small businesses never reopen.
If you’re not sure how to build a contingency plan for your business, tap into resources such as FEMA’s Preparedness Checklists & Toolkits, the US Small Business Administration’s emergency preparation page, or Ready.gov.
4. Don’t neglect your error and omission insurance (E&O)
Your insurance policy doesn’t automatically grow in tandem with your business needs. If you’ve been in business a while, you doubtless have more going on than when you started. Do you have the right level of E&O coverage now, and have you reviewed the precise terms of that coverage? You don’t want to be in the position of discovering that a claim you filed is rejected because it’s not covered by your policy.
5. Custodial risk: What are your options?
Does your custodian offer services that are in line with your unique value proposition, company culture and client needs? Are there any conflicts of interest? Do you have redundancies and diversification of solutions in relationships and technology access?
Diversifying your custodial relationships offers the value of choice. Working with multiple custodians may offer you increased independence, a wider range of choices for yourself and your clients, or access to more diversified platforms, products, and services. Each custodial platform has unique capabilities, whether it be around service, technology architecture, solution sets, etc. Make sure your custodial relationships are helping you work in the best interests of your clients.
Business risks become opportunities
Consolidation, catastrophe, change – don’t be surprised or overwhelmed by these common curveballs. Regardless of the size of your firm, a steady-eyed risk assessment offers you the power to create new opportunities and protect your hard-won independence.
Gabriel Garcia serves as the head of business management and strategy for E*TRADE Advisor Services. He joined the firm in October 2019. As a firm believer in knowledge-sharing to help spur new ideas and collaboration within the advisory industry, Mr. Garcia is focused on driving business forward. Previously, he served as managing director for BNY Mellon's Pershing Advisor Solutions where he led its relationship management and consulting group and served on the executive committee.
Read more articles by Gabriel Garcia