Building an Incentive Program for Your RIA: Nurturing Success and Growth
October 10, 2023Implement These 4 Strategies in Your Sales Department to Close More Leads
October 24, 2023Using Benchmarks to Decentralize and Spur Organic Growth
Preparing your Registered Investment Adviser (RIA) for the eight-figure exit is a long and daunting task. It requires detailed planning, lots of follow-through, and many long hours. I know it can seem like a pipe-dream, but it actually is attainable. However, there’s a critical step in preparing for the eight-figure exit that many advisors don’t take until much too late. If you want to spur organic growth, drive value, and reach the eight-figure exit, you’re going to have to let go. In this entry, I’m going to look at how using benchmarks to decentralize can help you get where you want to be!
Follow Along With The Financially Simple Podcast!
This week on The Financially Simple Podcast:
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(0:38) Why are you the top producer in your RIA?
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(1:33) A foreign concept
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(3:06) Decentralization from the sales process is a necessity
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(4:51) Multiplicative growth
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(5:53) The ability to meet or exceed industry standards
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(6:41) The day I decided to fire myself
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(10:31) How do RIAs perform (Benchmarks to follow)?
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(18:01) Context matters
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(22:37) Questions to ask yourself
Using Benchmarks to Decentralize: Letting Go
Friends, running an RIA can be overwhelming.. From staffing and compliance oversight, to client retention and daily operations, the day-to-day tasks can be challenging enough. Yet, it’s not just about growing your assets under management (AUM) anymore; it’s about building a sustainable, scalable, and efficient business model. Therefore, you must somehow balance the daily demands of operating an RIA with that of being a business owner. How can this be done?
Decentralization, the act of distributing decision-making and operational responsibilities, can be a game-changer. I know from hard-won experience. By delegating the day-to-day tasks of operating your firm, you unburden yourself, freeing up precious hours for strategic planning and relationship-building. This shift also minimizes company-specific risk, as a team effort ensures no single point of failure. Moreover, decentralization empowers your team, fostering autonomy and accountability, which can lead to more innovative problem-solving and improved efficiency.
A Path to Scale
The allure of scalability is undeniable—it’s the difference between a stagnant business and one that flourishes with growth. Think of it as setting the stage for expansion without the constraints of your current structure. As your sales volume surges, you’ll maintain or enhance efficiency, crucial for sustained growth. But how do you ensure your team can steer the ship without your constant guidance?
Before you can begin using benchmarks to decentralize, you must know where your firm currently stands. Therefore, you’ll need to know how to answer questions like:
- How many clients does your practice currently serve?
- What’s the average household (AUM for all members of a client’s household) per client?
- What is your firm’s average revenue per client?
- What’s your client retention rate?
Where do you stack up?
Once you have compiled your internal data, you can begin looking to benchmarks as a starting point for your planning. For example, the 2022 RIA Benchmarking Study by Charles Schwab found that for firms with over $25 million AUM, there was a noteworthy 6.2% rise in new clients from 2016 to 2021. Now, if your firm has $250 million AUM, that’s equivalent to an annual revenue of around $2.5 million. With 6% translating to $150,000 in new client revenue, these figures could form the backbone of your growth strategy. But how?
Well, let’s factor in your average revenue per household. For the sake of simplicity, let’s say it’s $15,000. That extra $150,000 revenue? It’s roughly 10 new clients. But if your average household revenue is $5,000, you’re eyeing a robust influx of 30 new clients each year. This knowledge is more than just a numbers game—it’s pivotal for systemizing decentralization and pinpointing when to bring in reinforcements.
Organic Growth Matters
The same benchmarking study by Charles Schwab revealed that firms with over $250MM in AUM saw a 19.7% growth in AUM and a 7% rise in net organic growth in 2021. Firms ranking in the top 20% of the Firm Performance Index saw AUM growth of 28.4% and net organic growth of 16.1% during the same period. Seems pretty great, right? Maybe not.
While Schwab’s study demonstrates commendable Compound Annual Growth Rate (CAGR) figures, a closer look shows a more nuanced reality. The CAGR of net new assets for the average RIA firm at Schwab was a mere 2.2% over five years, excluding market movement. Even with a positive revenue CAGR of 11.3%, it’s important to consider that average RIA firms experienced net negative organic revenue growth over five years. The key takeaway? If you want enduring value, prioritize organic growth.
Tying it All Together
Friends, this is why using benchmarks to decentralize and spur organic growth is so important. In fact, if you’re truly aiming for the eight-figure exit, I would say it’s a necessity. You see, decentralization intertwines with organic growth. As you decentralize, you’ll have to implement standardized systems and processes that naturally foster scalability. Reflect on where your RIA currently stands and compare it to best-in-class benchmarks. These benchmarks provide insights into strategic advantages you can leverage within your firm to increase throughput and maximize value. Additionally, you can leverage data to craft sales processes that drive organic growth, removing your central role in day-to-day operations.
Wrapping Up…
Look, decentralization isn’t just a buzzword; it’s a strategic imperative. As an RIA owner, your journey involves relinquishing control to build a stronger, more resilient business. With decentralization as your guide, you’ll not only elevate your RIA’s value but also transform it into a thriving, self-sustaining entity. By embracing decentralization, you’re setting your sights on a future where your RIA’s success isn’t solely dependent on you, but on the collective skill of your team and the systems you’ve put in place.
Friends, life is hard, and driving your RIA toward the eight-figure exit can be frustrating. But life is good, and decentralizing can alleviate that frustration. Using benchmarks to decentralize and spur organic growth can yield powerful insights, making the path toward an eight-figure exit at least financially simple. Hey, let’s go out and make it a great day!
Still have questions about how to decentralize and drive value growth for the eight-figure exit? Reach out to our team to learn how we could help!