Rapid consolidation of registered investment advisory firms and shifting forms of affiliations with brokerages and other giants of the wealth management industry are changing how financial advisors go independent. Join planner Kevin Thompson of Fort Worth, Texas-based 9I Capital Group and Shannon Spotswood of RFG Advisory for a live Leaders Forum discussion moderated by FP Chief Correspondent Tobias Salinger on the key trends shaping new definitions of advisor independence.
Transcription:
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Tobias Salinger (00:14):
Hi, I’m Tobias Salinger. I’m the chief correspondent at Financial Planning. Our parent company is Aris, welcome to the Leaders Forum, where we bring together innovators and senior executives to share their experiences and perspectives on the most pressing topics. The subject of our discussion today is the Changing nature of Financial Advisor Independence. We’ve got a couple of great guests today. Shannon Spotswood is the president of Birmingham, Alabama based RFG Advisory, and Kevin Thompson is the president and CEO of Fort Worth, Texas based nine Capital Group. Thank you both so much for joining us and both of our guest firms were participants in our upcoming feature on this topic, how Financial Advisor Independence is Changing and How to Define Financial Advisor Independence. You’ll be able to see that feature package on our website at financialplanning.com in the early part of next week on Tuesday. That’s Tuesday, June 4th. One quick programming note for the audience before we jump in. Please feel free to chime in with questions at any time and I’ll be sure to pose some of them to our guests as we go. And why don’t we just jump in. I’ll start with Shannon. Let’s get to the crux of this conversation. How do you think Financial Advisor independence is changing?
Shannon Spotswood (01:54):
Well, first off, it’s just so great to be here with you, Toby and Kevin, and we’re going to talk about one of my absolute favorite topics, advisor independence. So this is going to be a really fun session. I think that to set the table there is a proliferation of affiliation models in the marketplace now. So the word independence is very overused and it is certainly just thrown around in a lot of different context and this is making it really challenging for advisors to make heads or tails about what is the best model for them. I think on top of that, as our industry is kind of known for, we all use our own language. So as advisors are thinking about independence, it’s apples to oranges to grapefruits, to orangutans when you try and line up the different models and the economics and zero in on what independence means.
(03:03):
So the bigger picture backdrop is we still have 67% of our assets in the wirehouse channel that is an independent. So on the independence side, the good side, we like to always point to the amount of growth that we’re seeing in independence, the number of advisors that are moving over to independence and that pendulum is really shifting and swinging in our favor. But I always think important and it points to the tremendous amount of opportunity that lies ahead for all of us who are champions of advisor independence, that only a third of the assets are currently on the independent side. So if I was to define in the way that we define independence at RFG, it is having control over your time. It is partnering with a platform with a firm who is all in supporting you. It is thinking very strategically and intentionally about organic growth and building enterprise value. So we define independence in this lens of organic growth, of enterprise value, appreciating enterprise value and of time. And that helps us to really separate ourselves in this proliferation of different models and we can talk about the spectrum of independence that I think is helpful as advisors are seeing that. But I’d love Kevin for you to get a word in to kick us off and then I’ll kind of come back and share how we frame up that spectrum.
Kevin Thompson (04:57):
I love it. I love what you’re saying. Proliferation of value. You’re absolutely right. I love to kind of interject on in story form. When I first started in this business, I went into a TD Ameritrade, right? We respectfully decided to part ways after nine months of working there. But one thing that I’ve learned as I’ve grown in my world in regards to the financial advisor space, after leaving TD Ameritrade, I went to a captive agency, an agency that was an insurance based agency, guardian life insurance. I did that for a decade. I helped them build an investment specialist office firm slash part of their business. After doing that, I started realizing when I wanted to do true financial planning after I got my CFP, Hey, can I use a Lista plan? Hey, can I use wealth.com? Hey, can I do these things? The answer was consistently no.
(05:53):
So that’s when as a financial advisor I realized, oh, I got to go independent because I want to manage my business. So now that takes me to the space where I am in today, managing my operations, choosing the tech that I want, choosing the way I want to manage and help my clients because to be fair, I could not be a true fiduciary or say I was a true fiduciary when you’re only giving me a box to live in. Like they always say, if you give a person a hammer, everything looks like a nail and that’s what that life is. I wanted to move outside of that space and do true financial planning. So from a standpoint of financial advisor independence and how it’s changing, people are moving towards it. But one thing that people are battling against, and I think Shannon you understand this as well, is well, if I move over there, do I still have my autonomy? If I’m moving to a nine I capital and RFG or like Josh or one of Josh or Riol Wall’s Management, what does that look like? Can I keep doing what I’m doing or do I have to fit in a box? And I want to hand that back to you. Shannon, what are your thoughts on that in regards to autonomy? And I’m sorry if I’m taking over a little bit, Toby, I’m sorry if I’m asking the questions, but I want Shannon’s opinion on that.
Shannon Spotswood (07:10):
We’re going to have no shortage of volleys back and forth, which is what makes us so fun. Alright, so as we think about this spectrum of independence, you absolutely hit it on what is the key defining factor, which is autonomy. Autonomy over how I build my business, how I manage my team, what my brand represents, my client experience, how I can drive organic growth, how I can build enterprise value. So over in, we obviously all know what the captive world looks like on the independent side, the clause look a little bit different. You have limited autonomy if you have sold a majority of your business and you are now given a menu of services and a target EBITDA margin, revenue growth target that you have to meet that has, we kind of are over there on the independent spectrum. We come up a little bit when you sell a minority, but the same principles apply.
(08:08):
You have traded a degree of autonomy for either that payout, that monetization of your business in exchange for that autonomy, and then you go all the way over to I’m my own RIA and I’m wearing all the hats. I’m chief cook and bottle washer and I have full autonomy. But with that, I am pulled in a lot of different directions that may not maximize my time, it may not maximize my happiness and my fulfillment for how I spend my day. And then RFG really sits in the middle tilted over to the full RIA, which is we’ve built a platform that is rooted in helping advisors build their business, like underscore, exclamation mark, highlight, build their business without compromise. So providing all of the services and support compliance, operations, branding and marketing, investment management, coaching, succession planning, like all of technology, all of the services that are required in order to have maximize your most valuable resource your time, doing what you do best, but own your client relationships, own your data, own your brand, own your organic growth drivers and most importantly own that appreciating enterprise value. So this is going to be such an important conversation because that spectrum of selling a majority of your firm to chief cook and bottle washer, doing everything yourself is a big part of the look in the mirror and ask as an advisor some very honest questions of yourself and it helps you then narrow that field of vision in terms of partners and options that most closely align with what you’re hoping to achieve.
Kevin Thompson (10:13):
Thousand percent, you’re either going to be the business owner or you’re going to be a person that rolls up into some kind of other entity that already has the business structure that allows you to be the person you want. So you’re absolutely right.
Shannon Spotswood (10:25):
Not to talk our own book here, but I think that this is a really exciting and interesting time for advisors to be thinking about independence, especially for next gen advisors, for advisors who are very future forward in their thinking, want to be a part of defining what the future of the industry looks like because I believe that we are in one of the most exciting chapters of growth and disruption that we’ve ever seen in our industry with the generational wealth transfer, with the amount of private equity that has come into our industry with just the advancement of AI and technology and the tools that are at our fingertips that if you are an advisor who’s next gen, that if you’re an advisor who is thinking very expansively about your client experience in the future, there’s only one answer there and it is independence because the upside and the growth in front of us is so tremendous that to do anything that would restrict that independence, if you’re in that pool of advisors, it kind of feels crazy. It feels crazy to me. I think it’s just too rich of an environment to limit yourself. And there are some great options where you don’t have to be everything wearing all the hats, but you have all the support and importantly you retain control over that enterprise value and its appreciation on your family’s personal balance sheet.
Kevin Thompson (12:13):
Toby, let me take this last thing real quick before we go to the next section,
Tobias Salinger (12:16):
Okay? Okay,
Kevin Thompson (12:16):
Sure. If you don’t mind, just really quick. So there’s a number in there I’m going to tell the people on the call. There’s a number in there that if you’re in a space right now that you’re not happy with, there’s, and we call it gross dealer concession in a broker dealer space, right Shannon? So if you’re between 150 to 300,000, there’s a spot in there where you’re thinking you can start thinking, you know what? This independence work for me because what’s going to happen is this, you’re either going to get way too big and you’re going to be like, man, all of my renewals are here. Why do I want to leave? I’m only getting, I know I’m getting 70 or 80%, but at the end of the day I’m comfortable
Shannon Spotswood (12:55):
30 or 40.
Kevin Thompson (12:57):
Exactly, exactly. So there’s a number in there between, and for me it was 400 grand and I was given up 200 and almost $200,000 for what? So those are the types of things like Shannon was mentioning, your value, figure out what that actually looks like and what you’re actually paying for and does it make sense?
Tobias Salinger (13:17):
I think that is such an important point. I think a lot of times numbers like that are so important for advisors to consider for their practice and they’re oftentimes reduced to a certain generic term like economics, but I think it’s so important to kind of think about those metrics and those measuring sticks for when an advisor is ready to make a change and make the leap towards independence. We got a really good question from the audience I’d like to pose to both of you and Kevin, why don’t we have you start this time. We have an audience member who asked, how do you think large RIA aggregators are impacting the RIA space? You’re an independent RIA in the RIA space, and I know you have some strong feelings about this. How would you respond to that question?
Kevin Thompson (14:19):
Has this guy been watching my podcast or this guy who grew up and watching my podcast? Because you’re absolutely right. It’s the same thing as are we turning into the wirehouses? I mean, are we just going to become the Merrill Lynch, the Smith Barneys of the world? Well, we’ll have four or five wirehouses that control the entire environment and everyone else is left to just feast on their own or they have to just go into a Merrill Lynch and that’s who I have to align myself with. So the larger some of these companies get, the harder it is for me to attract new talent because when the people come out of college and they’re looking to go and find a career or find a job, I don’t have the one 50 or the 80 or $90,000 to pay them a flat salary. We know who does these large aggregators who have all this cap money from these private equity funds, and they can go in and they can provide just gobs and gobs of resources for these firms. The issue that we’re going to be facing in the future is that we’re going to have to make a decision, one, either we’re going to have to all align our smaller RIAs together to become a larger piece of the pie to where we can combat these aggregators. Or two, we’re going to have to align ourselves in regards to just being eaten up by these aggregators because hey, it just makes sense for us at a bottom line perspective. Shannon, what do you say about that?
Shannon Spotswood (15:48):
This is such a great question. It’s very
Kevin Thompson (15:51):
Big.
Shannon Spotswood (15:51):
Yeah, I feel like if those are the two binary events alignment of the smaller firms or get eaten there, there’s a tremendous amount of very successful firms obviously. Well-run firms, well-capitalized firms that are in that aggregator space, it’s the majority of the model is in Pacman mode of how much can I gobble up? I think that as especially these next gen advisors, these advisors who value their independence and they are recognizing that the majority of the economic benefit in that aggregator model is accruing to G one and it’s leaving less economics on the table for G two, G three, who’s really responsible for driving that organic growth and deepening those client relationships and retaining those client relationships. So I think, and again, I don’t want to just talk our own book, we’ve got some great competitors as well that are similar in mindset around what RFG is building, is that there is room in the marketplace where an advisor has control over what I think are the three most important factors that influence independence.
(17:18):
And that is how are you spending your time? How are you driving organic growth and how are you building enterprise value? I’m going to continue hitting these things because our business models are so attractive from a recurring revenue standpoint, and it is so contingent upon that G two and G three for driving growth, for providing leverage on time, for building enterprise value, that to have a support network, I think it is becoming increasingly challenging for advisors even sub a billion dollars to be their own RIA. And it’s challenging both in terms of being able to hire the talent and evaluate the technology, stay on top of all the compliance requirements, everything that is required to run a successful firm. That’s challenging, but even more challenging is it leaves no margin for living a fulfilled life and advisors do incredibly noble work and if we’re just honest about the work that they do, it is 24 7, 365.
(18:31):
You never know when a client is going to need you. So I think that as this aggregator model that is proliferating and is just, it is widespread throughout our industry and it is certainly the easy button, it looks very attractive. You can get very excited about that day one check being deposited in your account, all the hope and promise of the beauty of our marriage and partnership. And then you get into it and you realize, to Kevin’s point, I’m just back at a wirehouse, I’ve sacrificed my independence and I really haven’t gotten anything in return. So as we think about the future of the industry and the future of the advisor experience, the client experience, there is room for, I am independent, I am supported, I can be as large as I want. I can be a lifestyle advisor. I can hit all of those goals around growth and what I want to deliver to my clients, but it doesn’t necessarily require you to sell out to an aggregator. I think there are more attractive models and I think that the future of our industry is putting that on the table as the most attractive model.
Kevin Thompson (19:51):
And I like where you’re headed with that because here’s one thing I want to mention, and I’m sorry Toby, I know I’m baring in here and I apologize. I was hoping you would respond. Yeah, no. So I have a close friend, we talk about this a lot. She’s looking to succeed in the next, what, three to five years and she can get a higher multiple from an aggregator, she can get a higher multiple from a person that’s outside from a private equity firm, right? Two and a half, three maybe. I don’t know what the multiple will be, but it’s going to be quite higher than if she went internal. So those are some of the issues that she says she’s dealing with or they’re dealing with at this time because hey, I know I can get X, but I don’t necessarily need to have that much money, so I want to keep it internal. But that’s what a lot of these people are dealing with, especially in succession.
Shannon Spotswood (20:37):
And this is such a great point because the aggregator model is predicated on financial engineering,
(20:45):
It’s predicated on financial engineering and historically especially because fear is so let’s just acknowledge it as the elephant in the room. It is the number one factor that holds advisors back from leaning into what they know they want. I’m afraid. I’m afraid of the transition, I’m afraid of an internal transition and I won’t be able to retire the way I wanted to retire. Fear is just such a motivating factor and that then clouds to some degree your ability to see very clearly through the financial engineering. So I think in the case of your friend who is the successor that business rests on her shoulders and her ability to retain talent, her ability to deliver that client experience to serve G one, G two, G three, all of this generational wealth that is transferring, we’re living in a moment where I think that if you can show that retiring advisor and you can structure these deals where they benefit, where you can drive that organic growth and that retention, it doesn’t have to be such a binary choice and that next gen advisor, if they’re not on board, that deal’s not getting done.
Kevin Thompson (22:07):
Yeah, absolutely.
Tobias Salinger (22:10):
Well, succession is always one of the most important practice management topics in the profession. And we also got another question from the audience that I think touches on another pretty important area of practice management as well that also intertwines with this topic of independence. And I think it’s great to ask the two of you about this because the audience member is talking about content as in this type of content or podcasts, social media posts, building your brand online and sharing your authentic self online. This audience member is talking about an experience of being a captive financial advisor slash agent at a brokerage firm where the corporate office was putting out Instagram posts showing support for causes that many of the audience members clients did not appreciate, agree with or condone. And this audience member was giving up 30 to 50% of revenue. They say to have a company push clients away and always tell me no on platforms, processes, podcasting, et cetera. Shannon, why don’t we start with you? What do you think is the role of content and brand building around this discussion of independence?
Shannon Spotswood (23:49):
First off, love you audience member. This question is so important. Thank you for asking it. This is table stakes, full stop for the future. And I always joking, I don’t know if you know this song, it’s like my name is no, my number is no, my sign is no. If that is your compliance department, it is because they are catering to the lowest common denominator and they are enforcing company policy as regulatory requirement, and it’s just not true. A huge, huge part of the reason to be independent is so that you can authentically tell your brand story. You can communicate your values to your clients. You can do that in all the different channels, social media, podcasting, webinars, client events, seminars, passion, prospecting. The list goes on and on and on. And we always say, this is the hill we want to die on. The data tells us that clients value three things from their advisors.
(24:51):
Number one, do you get me? Number two, do you share my values? Number three, do I want to spend time with you outside the office? The only way for an advisor to be able to hit on all three of those points is through their proactive client communication and prospecting journey through how that they can express themselves and those values and what it would be like to spend time with me outside the office. Those advisors that are telling their story are growing faster. Here’s what is so interesting about this point. Our industry is in a growth desert right now. Organic growth in the industry is two to 3%. If you look at an average advisor’s p and l, they’re spending one to 2% of revenue on marketing, client events, branding. So it’s no surprise that we have this anemic growth. When we look at advisors at RFG that are fully embraced, the platform outsourcing, investment management, leveraging all the tech and the tools and leaned in on their authentic brand story and their client event, they’re growing organically at 19%.
(26:05):
There is not a dotted line. There is a straight bold, like straight line between your ability to build your brand and tell your story and your ability to drive growth, especially for next gen clients. This is a non-negotiable. They don’t get it. They’re like, what do you mean I can’t text you? You’re not going to have curated content for me. And what you’re talking about is not relevant. They have lived in a curated world since the day they had a phone put in their hand. So whether it’s the client portal or the client experience, it all needs to be touchstone back to that marketing and branding flywheel and engine that you built and the firm forcing their values onto the clients. That’s a whole nother conversation. So I’ll kick it to Kevin.
Kevin Thompson (26:57):
God, man, I wanted to punch the institution through the screen here. I get that feeling, man, it is always CYA, they’re going to cover their own, you know what? And that’s all it’s about. And she’s absolutely right because you know why they are least common denominator. Think about this. You ever were at those firms and they’re like, Hey, this guy’s a million dollar producer. He can do whatever he wants and he has all the leeway to do what he wants, but you on the other hand, who may be a hundred thousand producer, you have to fall in line. And that’s exactly how those operations conduct themselves. Now, one thing I’ll say is I love social media. I have a podcast, Twitter, all that stuff. You have to use it because it’s a great way for me to do what I don’t necessarily have to call my clients day after day after day. I have touch points on all these different avenues. It allows me to be more efficient. My clients will never tell me, Kevin, I left you because you just never contacted us enough. What do you mean you get emails once a week? You have my podcast I’ll send out once a week. You have this, this, this, this and this. I’m always touching my clients. I’m always interacting with my clients. And that’s what social media allows you to do is to be able to expand your horizon, expand yourself while not having to actually be there.
Shannon Spotswood (28:18):
Kevin, we’ve actually seen that show up in the data, especially during times of increased market volatility and what’s happening with the phone and the email for our advisors and it’s not ringing. They feel like their advisor is constantly in communication. And when we ask them these questions about how often is your advisor and how often are you hearing from your advisor meeting with your advisor, they always over index that answer exactly to your point, because they’re seeing you in video form, they’re receiving all of this social media, all of this email traffic from you, market commentaries, relevant content about their life. They’re hearing from you constantly. They feel like they’re meeting with you constantly. And I wish I had the data at my fingertips. I will follow up with this Toby, but there was a great stat in some of the recent material that was put together, I think it was by McKinsey, and it was around client communication and how much clients want to be communicated with their advisor and how little they are receiving. And it was one of those stats where it blows your mind the number of clients leaving their advisor because they don’t feel they’re receiving communication. And this is really like it’s table stakes, but it’s also, it’s easy to do. You’re passionate about serving your clients, you have just a never ending stream of stories to share. And that’s what really is the underpinning of a successful client communication engagement strategy.
Kevin Thompson (30:00):
And the fact is it’s never been cheaper. It’s never been cheaper to go out and have these, you can make a three minute video and that takes care of a month, right? You can make a bunch of videos and just chop ’em up and have that send out maybe on a weekly basis. So client contact should never be an issue, but it continually creeps up as one of the main issues
Shannon Spotswood (30:21):
People connect with people.
Tobias Salinger (30:24):
And it has been great to connect with the two of you and with our audience. We appreciate the great questions and clearly there is so much involved when we talk about this concept of independence. I think it’s a great note to end on, even as we only touch the surface of and got deep into some we’ll
Shannon Spotswood (30:51):
Come back discussion. We’ll come back, Toby, just let us know.
Tobias Salinger (30:54):
We’ll come back. It might need to be a three or four hour discussion, but everyone please give a social media follow first and another virtual round of applause to our guests, Shannon Spotswood of RFG Advisory and Kevin Thompson of nine I Capital Group. And don’t forget to check financial planning.com next week for the independence feature and all of fps Wealth Management news and go ahead and subscribe while you’re there for financial planning. I’m Tobias Salinger. Thanks again to our panelists and everyone, have a great afternoon.
