Starting Your Own RIA Firm (Part 2): Tips for Marketing and Business Development

Many talented professionals some day dream of having their own business. In the financial industry this usually means being the trusted advisor and investor on behalf of individuals and institutions. On October 4, CFA Society Chicago and its Professional Development Advisory Group assembled a panel to discuss the challenges of building an RIA business for the second part of the Starting Your Own RIA Firm series. The process of business development, brand development and marketing were addressed by the panel.

  • Jennifer Aronson, CFA: Aronson, moderator of the panel, is managing partner with Mosaic Fi, LLC. In that role, she works with family offices and high net-worth individuals. Prior to founding Mosaic, Aronson had over 20 years of experience with Northern Trust and Brinson Partners. She is currently serving on the Board of Directors for CFA Society Chicago for a three year term (2017-2020) and is a member of the CFA Women’s Network Advisory Group.
  • Scott Bosworth, CFA: Bosworth is vice president and regional manager in the Strategic Relationships group of Financial Advisor Services. He is responsible for sales, leadership and management of some of Dimensional’s larger advisory relationships.
  • Andy Kindler: Kindler is managing partner at Xcellero Leadership. Xcellero is focused on facilitating solutions for developing individuals, teams and organizations to spur growth. Kindler has a wealth of experience from different industries both on the corporate side and consulting.
  • Laura Sage: Sage is director of marketing and investor communications at Castle Creek Arbitrage, a relative value hedge fund. Prior to joining Castle Creek, Sage was an independent equity options trader.
  • Mark Toledo, CFA: Toledo has over 40 years of experience providing investment advice to individual and institutional investors. He began his career at Aetna Capital Management and after leaving Mesirow Financial in 2003, he founded Total Portfolio Management, LLC, his own RIA firm. In 2013 he merged his business with Chicago Partners Wealth Advisors.

 

Aronson began the discussion by asking the panel to address the critical tasks of marketing and business development for newly formed RIA firms.

Marketing and Business Development

The panelists agreed that as in any business, a business plan must be created, and that plan must include a path to an effective marketing strategy. The leader of the new advisory firm should spell out his role and have goals. A statement of investment philosophy is critical to the process. Advisors should focus on why they want to do this, what is their passion? You need to stick to your expertise and not try to be everything to anybody. It is important to be true to yourself and be able to tell your story. New RIA’s should attempt to have client meetings scheduled weekly and if you believe a prospective client’s needs are outside of your expertise, refer them to someone else. Client referrals will be critical to your success; often you will get a referral back. It would be useful for a new RIA to have a five-year plan where years one and two would be devoted to getting your story out; you will probably need to pay bills from some other source. Years three through five is when you can expect your business to ramp up.

Targeting Institutional Clients

The universe of potential institutional clients is much smaller. Sage was the panelist with the most experience in this arena. Most pension funds and sovereign wealth funds employ consultants. You will market to the consultant, not the fund directly. There are proprietary databases that contain information on these funds which can be accessed for a fee. There are other platforms similar to “speed dating”, which can gain you some introductions.

Methods to grow the business

  • Social Media: The use of social media is a critical skill to garner and keep clients. Retirees are ubiquitous on social media sites. LinkedIn is a site that can be helpful. Congratulate clients and potential clients on life-events they post online. Follow their work and offer assistance if there are sudden interruptions in their careers. They will remember you for it. A clear and concise website for your business is a must.
  • Referrals: Referrals are the way in which you will grow your business. A vast majority of clients would be happy to give you a referral, however not enough RIA’s ask for this. It is wise to spend time teaching your clients how to sell you. Don’t be shy about asking your client for a referral, however, you never want to put your client on the “spot”, be clear as to why you are asking for this.
  • Public Speaking: The panelists encouraged prospective RIA’s to burnish their public speaking skills. When you present yourself to other people, either publically of privately, be passionate about your expertise. It is important that you are able to communicate your conviction. You may suffer some setbacks, but show no fear in your demeanor. If you are able to keep your level of enthusiasm high, people will want to be part of your success. Clients are more motivated to put their trust in someone who can communicate vision and strategy with confidence.

There was a brief question and answer session with the audience at the end of program. There were inquiries on how to “close”, whether to remain independent or affiliate with an institution, and what functions to outsource. The panelists termed “closing” as the natural outcome of a positive meeting, once again there should be no fear in the “ask.” Typically affiliating with an institution is something that is done after establishing your business. Outsourcing functions can be expensive, but pay dividends down the road. You must look at your skill set to determine if some functions are better left to others.

 

Starting Your Own RIA Firm

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Many talented professionals some day dream of having their own business. In the financial industry this usually means being the trusted advisor and investor on behalf of individuals and small businesses. The CFA Society Chicago and its Professional Development Advisory Group assembled a panel to offer insights for people who are considering exploring this possibility.  This panel of experts was composed of the following RIA professionals:

Jenifer Aronson, CFA – Ms. Aronson, moderator of the panel, is managing partner with Mosaic Fi, LLC. Ms. Aronson is a member of the Steering Committee for the CFA Women’s Advisory Group. She works with family offices and high net-worth individuals. Prior to Mosaic, Ms. Aronson has over 20 years of experience with Northern Trust and Brinson Partners.

Chris Abraham, CFA – Mr. Abraham is founder of CVA Investment Management. Prior to founding CVA, he held positions at Nuveen Investments, Anderson Tax, Mercer Investment Consulting, Intel Corporation, and Ariel Investments. Mr. Abraham left Ariel to found his own investment firm.

Gautam Dhingra, CFA – Mr. Dhingra founded High Pointe Capital Management. Prior to founding High Pointe he spent most of his career at Hewitt Associates. Mr. Dhingra has served as a Lecturer of Finance at Northwestern, Chairman of CFA Society Chicago, and on the Board of Regents for CFA Institute. Mr. Dhingra left Hewitt to found High Pointe.

Robert Finley, CFA, CFP – Mr. Finley is Principal of Virtue Asset Management. Prior to founding Virtue, he held positions in wealth management at LaSalle Bank and at TIAA-CREF’s Trust Department. Mr. Finley founded Virtue after leaving TIAA-CREF.

GJ King – Mr. King is President of RIA in a Box. Prior to RIA in a Box, Mr. King held positions at Goldman Sachs serving as an advisor to high net worth entrepreneurs, families, and foundations. RIA in a Box currently assists nearly 1,500 RIA’s in helping to overcome the compliance challenges of having your own RIA firm.

Ms. Aronson began the discussion by asking a series of questions of the panel members. Below is a list of those questions and the responses of the panel.

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Why did you start and what was your biggest concern about starting?

The panelists were certain that they could provide a better investing experience for their clients. The people they were recommending on behalf of their employers appeared to add little value. Their corporate jobs were becoming more demanding, but their salaries were not reflecting the added responsibilities. They expressed a fascination with the markets and a drive to obtain upper quartile performance for clients who would put their trust in them.

Their biggest concerns revolved around their families and the fact that they would not have a reliable paycheck for some time.

How did you develop your firm?

Panelists talked about a wide range of service providers that can be utilized. Interviewing managers and hiring the right legal help is critical. It is important to determine what fee structure will be needed given your costs. If you need a Bloomberg machine, that is a significant cost.  You can find firms that can provide all the services you need, or you can parcel it out.

What is a day in the life like?

The panelists stressed that there are two separate but critical roles, marketing and investing.  People with investing talent tend to spend too much time in that role. More time is needed in marketing which means finding potential clients amenable to your sales pitch. You must be able to separate cold leads from warm leads. Traveling is also essential to meet clients and evaluate companies you are thinking of investing in.

What questions should people ask themselves before starting an RIA?

Do you want to be an entrepreneur? You must be motivated to sell and be willing to hustle to accumulate assets. Has your family bought in? The few years will be difficult; can you handle the ups and downs? There is a leap of faith to leave an established firm.

What would you do different?

Look for partners, mentors and advisors, don’t be afraid to engage others. A trusted partner to share the burden would be a valuable asset. Don’t be afraid of compliance, but keep it lean. The client is trying to evaluate if he can trust you, you must be able to show responsible reporting and compliance.

What was your biggest surprise?

Institutions can be more short-sighted than individuals. Retail clients will be more loyal. The ups and downs were tougher than the panelists first thought they would be. People will be more helpful than you think. You must be disciplined in spotting bad deals and being able to say no.

How did you build your book?

The panelists stressed that you must be adept at marketing, or find someone who is. Friends, family, ex-colleagues, and people you have had relationships with over the past five years are potential clients. Walk-ins must be able to find you. How do you differentiate yourself from your competitors? If you have an edge in substance and style they will remember you. Can you get to the point where you can withstand a 50% hit in a bear market?

Current Market & Regulatory Environment

GJ King of RIA in a Box pointed to three regulations that directly impact this industry and that may see significant modification in the near future.

  1. DOL Fiduciary Rule. This rule will require that most advisors must be in a fiduciary role for their client. If implemented this should have little effect on RIA’s, but may be more disruptive to broker/dealers. This rule is facing delay and possible modification.
  2. Repeal of Dodd Frank. Modification may include that funds that previously were required to register with the SEC may be relieved of this burden.
  3. A new Form ADV will be required by October 1st. RIA’s will be required to reveal more about their company.

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Mr. King also spoke briefly about the need for a chief compliance officer (CCO) for every RIA firm. Typically the CCO is also the principal of the company. Companies with over $500 million in assets under management are required to have a full time CCO.

There was a brief Q&A session following the panel’s presentations that touched on the following topics:

  • CFAs are exempt from passing the Series 65 exam in Illinois.
  • Liability insurance is relatively cheap and does make sense.
  • Disgruntled clients can be avoided by doing quality control on prospective clients. Agree up front on what is expected of you.
  • Robo Advisors have not been disruptive to this industry. They have affected the brokerage industry.
  • Although the target market may be 60 years of age or above who have the most accumulated assets who are 60 years of age and above, do not leave their children out of the discussion as they are future clients.