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As someone with experience consulting in the independent space, I’ve seen how teams breaking away from big financial institutions to found RIAs usually continue under the same leader. While this continuity makes sense, the shift for that leader from managing peers within the superstructure of a broker dealer to holding partners accountable in a newfound business is extremely tough.
This shift necessitates a change in mindset in which a leader transitions from being part of a large and complex machine to managing an entity where every decision counts. In this setting, new RIA CEOs often get bogged down trying to build consensus, which can lead to frustration and regression for all stakeholders involved. Then, as the RIA grows, these delays can become more troublesome, creating inefficiencies that can impair the firm’s overall growth trajectory.
RIAs should embrace VC-style innovation
But there’s a way out of this. RIA executives can take a page from venture capitalists, a concept advanced by Ilya Strebulaev, Professor of Finance at Stanford University.
VCs have helped launch companies like Apple, Google, and Tesla, which started out with fewer resources on hand than their respective competitors. So, what can RIAs learn from this? VCs have a knack for driving innovation – an approach centered on quick decision-making and a willingness to pivot when necessary. If the leaders of new RIAs adopt this approach, they can speed up decision-making and open the door to bigger opportunities.
An important requisite in the VC world is a high tolerance for failure. VCs expect most of their investments to fail, but they’re fine with that because they know one big win can eradicate previous losses and put them ahead. This is different for RIAs, of course. Their leaders seek to avoid mistakes, almost at all costs. But to grow, RIA executives need to focus on chasing high-impact bets rather than playing it safe all the time.
Here are four specific VC principles that can help RIA executives make better, faster decisions.
1. Individual insights matter more than groupthink
VCs know that great ideas often come from just one person – and it might come from the least experienced or most naturally contrarian person in the room. For an RIA, this means creating an environment where everyone from partners to support staff feels free to share their views without fear. Avoid the groupthink trap by:
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- Keeping meetings small
- Collecting feedback beforehand
- Giving more junior voices a chance to speak first
This way, fresh ideas don’t get drowned out.
2. Disagreement drives smart decisions
Most RIAs are built around consensus, which can slow everything down. VCs, on the other hand, don’t seek unanimous approval for decisions and tend to outperform those that do. To avoid this trap, consider assigning someone to play devil’s advocate. Or adopt a rule that allows decisions to go forward even if a minority disagrees. This ensures bold ideas aren’t stifled by the need for everyone to sign off on every initiative.
3. Rules shouldn’t crush innovation
VCs understand that sticking to inflexible rules can stop good ideas cold. That’s why they often let individuals pursue their own projects, even when others disagree. RIA executives should do the same – let partners and staff run with ideas that might not have full support. Putting in place a system where no one can veto a project outright creates room for innovation.
4. Speed beats bureaucracy
In the VC world, speed is everything. If you move too slow, you can miss a great opportunity. VCs keep things simple and set rapid timelines for decision-making. RIA leaders can learn from this by cutting out unnecessary layers of approval and setting clear, short deadlines for key decisions. The goal is to ensure good ideas don’t get stuck in the discussion phase.
One mid-sized RIA struggled with slow decision-making, which held up important tech upgrades. The firm’s CEO realized that their insistence on achieving consensus was the problem. By switching to a faster-track system – where small teams have the authority to make quicker decisions – they were able to roll out a new client onboarding process within months. This saved time and attracted new clients, increasing their competitive edge.
Today’s RIA executives can gain a significant advantage by adopting the VC mindset. By valuing individual insights, encouraging disagreement, allowing for exceptions, and moving quickly, they can make better decisions, faster. The days of playing it safe and aiming for stability above all are over. The firms that thrive are those that take calculated risks and act decisively. By learning from venture capitalists, RIA leaders can set themselves – and their firms – on a path to growth and continued success.
By embracing this forward-thinking approach, RIAs can better adapt to the ever-evolving financial environment, positioning themselves to thrive in a marketplace that increasingly rewards agility and innovation.
Casey Jorgensen heads the Dynasty Institute for Adaptive Leadership. Dynasty Financial Partners provides technology-enabled wealth management solutions and business services to independent financial-advice firms primarily focused on high-net-worth and ultra-high-net-worth clients.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.