Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
Soccer, or "football" as it is known outside of the U.S., is wildly popular worldwide.
The most recent World Cup final match between France and Croatia in 2018 attracted a global audience of over 1 billion. That is roughly 10 times as many people who tuned in to the last Super Bowl, the granddaddy of all sporting events here in the United States.
When not playing for their country, soccer players play for various “club” teams throughout the world. While a topic of passionate debate, the best players in the world play in the domestic European leagues (England, Spain, Italy, etc.).
One might assume then that the highest player salaries are for players in those European leagues. In one extreme example, contract terms were recently leaked for Barcelona star, Lionel Messi. He is rumored to be playing under a four-year deal that could net him nearly $670 million!
Do the math on that one.
Extreme examples aside, plenty of player salary money is being tossed around in the European leagues. However, it is not the only place offering top dollar.
In recent years (pre-COVID), Chinese soccer clubs have offered ridiculously huge contracts to lure players.
But guess what? The top players turned them down and accepted less money to play in Europe.
Why? European teams offer better development opportunities, facilities, coaches and fan support.
When the Chinese clubs could not match such amenities, they had to resort to trying to make up for it with more money.
Some players occasionally have taken the money and ran, top players have declined, choosing instead to remain in Europe.
Consider how this relates to choosing a new firm or business model as a financial advisor. Do the firms eagerly offering the highest upfront join-bonuses have to do so to mask shortcomings elsewhere?
I am always amused when such firms “accidentally” leak their ever-higher upfront bonus terms to the media.
Consider a firm claiming to offer the highest payouts. If their value proposition for advisors is attractive, why would it be necessary to offer the highest payout to lure advisors? (Never mind that stated “payout” rates generally never hold water after you’ve penciled in all the other “fees” that are tacked on.)
What are these firms masking? Or let me put that differently… “attempting” to mask.
Perhaps it is a blemished reputation from past ills that will take years (if ever) to be restored to prior heights.
For others, it is poor service levels strained by lack of investment and personnel turnover.
For others, not offering book ownership, restricting their advisor’s abilities to brand and market their practices, requiring decade-plus long commitments, etc., is not appealing to advisors.
How does one solve such hurdles?
Take a page from the Chinese club teams and attempt to bribe… I mean, buy your way to advisor’s hearts.
Consider how this same dynamic plays out in your own practice:
- Do you strive to charge the lowest fee schedule to your clients?
- Do you offer gimmicky schemes like the first two quarters of your services are free?
- Do you discount your fees whenever a client asks?
I hope you do none of these.
Instead, you should have developed an appealing value proposition, which enables you to confidently set a fair price for your services and hold the line accordingly.
You should not have to “buy” a client. Offer them amazing value and set your fee accordingly.
And yet, each year, the same advisors, who themselves say they would never stoop to such lows to attract clients, take the bait and move to a firm doing the same thing to themselves.
If your options consist of firms trumpeting their large transition bonuses or promising the highest payouts, pause and consider why those firms are in the situation of having to do so.
Price alone is irrelevant. You must compare price to value received.
If you go to the store and buy the cheapest vacuum available, you might feel good about your “bargain” purchase as you walk out of the store. More than likely, though, that vacuum will fall well short of your needs and expectations. And imagine if once you bought that vacuum, you couldn’t replace it for 10+ years!
Taking the highest upfront check or calculating out your apparent newfound riches from a suspiciously high payout will undoubtedly be mentally rewarding in the short term. Over the long term, you are assured to be disappointed, though.
Perhaps there are unrelated, justifiable reasons you might join such a firm. But, before you do so, strap on your soccer cleats and ask yourself if you should be hopping on a plane to China or jetting off to Europe.
Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
