Ask Brad: What Can an RIA Learn from McDonalds?
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.
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Imagine you want to open a burger restaurant.
Not a franchise of an existing burger chain, but your own branded concept.
You have a vision for your restaurant; a friendly atmosphere, inviting décor, tasty food, memorable branding, etc.
Those are the fun parts of running a restaurant.
What about the “back office” tasks? Ordering food supplies, processing payroll, closing the monthly accounting, to name a few.
You’d likely put those in the not-so-fun bucket.
Imagine if McDonald’s had a pitch for you: You don’t have to open one of our branded stores. However, because of our massive scale and experience, you can outsource many of those “back office” tasks to us, which we will perform for you better and cheaper than you could on your own. Your customers would not know it was McDonald’s performing those services.
For example, restaurants order food supplies from food distributors. As a single restaurant, you would have little pricing power to negotiate. But McDonald’s, with its enormous scale, can acquire supplies at a discount and pass those savings on to you.
Consider the commoditized tasks that McDonald’s could do more efficiently and at a lower cost than you could do yourself: ordering food, running payroll, staying on top of changing food regulations, etc.
Imagine running the restaurant you envisioned while outsourcing the non-customer-facing tasks to McDonalds. Such an arrangement would be appealing.
McDonalds does not offer such a service. But other industries do.
Consider Amazon Web Services (AWS), one of the most profitable divisions of Amazon.
To support its operation, Amazon began building massive data centers to handle the needed processing power for running its business. It had the scale to hire the best experts in cloud computing, the capital to fund the construction of enormous data centers, etc.
It eventually realized that just as it needed such cloud computing, other businesses did as well. Yet most did not have their scale advantage.
Having built these resources, AWS was born. Other businesses could tap into the AWS infrastructure to lower costs and run more efficiently.
Might McDonald’s one day create its own “AWS” offering for non-McDonald’s-branded restaurants? Could it deliver the commoditized, non-differentiating parts of running a restaurant better than the individual proprietor could themselves?
Consider how there are providers delivering the same outsourced services for financial advisors.
As an RIA, is part of your value proposition to clients how you process your fee billing? How you maintain your tech stack? How you logistically perform account rebalancing?
Such commoditized, non-client-facing tasks are necessary parts of running an advisory practice yet provide little perceived value-add for your clients.
As McDonald’s has the scale and expertise to perform certain commoditized tasks more efficiently and at a lower cost than most individual restaurants could, there are “middle- and back-office” solution providers that deliver similar value-add to the RIA ecosystem.
Outsourced solutions bundle tasks such as processing client fee-billing, maintaining tech-stack integrations, trading and rebalancing, account opening, cyber security, etc., delivered more efficiently and often at a lower cost than you can do yourself.
Did you start an advisory practice because you enjoy performing such commoditized tasks? Or are they necessary parts of running the business? Outsourcing such tasks provides more time to concentrate on the parts of the business you enjoy and help you grow your firm.
Just as my theoretical McDonald’s offering is performed in the background unbeknownst to the restaurant’s customers, these solution providers similarly stay in the background. You maintain your practice, brand and client interactions. You outsource where you’re not otherwise adding direct value.
As the RIA ecosystem continues to evolve, I foresee an increasing supply of such middle- and back-office providers from which to choose. While such growth will add to the complexity of choosing the best-positioned provider for your needs, the spectrum of choices will be well worth the due diligence.
Are there commoditized parts of your firm you wish you could outsource? If so, consider what McDonald’s (and Amazon) can teach us.
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.