Michael Stier, the chief executive of Charlotte, N.C.-based Adhesion Wealth Advisor Solutions, asked RIABiz if he could respond to a column by Ric Lager, Reclaim management of your clients funds. In the column, Lager says: “Contrary to today’s conventional wisdom, advisors today need to spend more time managing money and less time managing relationships and recruiting new clients”. Stier also asked clients that he thought had a solid strategic and tactical understanding of where they wanted to go with their firms to offer thoughts about outsourcing.

Reactions by established RIA firms to the rising tide of breakaway advisors differ.

On one end of the spectrum, you have indifference from firms whose principals are content with the “lifestyle practices” they have built. On the other end, you have firms established specifically to attract breakaways and their books of business. In the middle is a large swath of firms that recognize a ripe opportunity—to grow their firms in an accelerated, stair-step fashion by adding established books of business.

Firms that are serious about attracting breakaway advisors increasingly find themselves engaged in potentially cathartic internal re-evaluations. If you are serious about recruiting breakaways, you must take a hard look at your current investment management, operational and supervisory capabilities in light of potentially increasing advisors and assets. Firms are evaluating whether they have the internal people, skills, technology, processes, and investment expertise they need.

The need for this careful evaluation increases as competition for breakaway advisors heats up. Breakaway advisors are taking a serious look at the platform capabilities of the firms vying for their books of business, evaluating whether the prospective firm can offer capabilities at least as good—and preferably better—than those they currently have.

A growing number of companies, after surveying their firms and the newly competitive environment, decide the most effective way to scale up is to outsource.

As an outsourcer ourselves, we see many firms in the midst of or at the end of an internal re-evaluation. From these firms a number of common catalysts, or tipping points, emerge as drivers for RIA firms to outsource.

“I am spending too much time working IN my business, versus ON my business.”

Samuel Coleridge waxed poetic about the much-maligned albatross. Principals of firms with a “do-it-yourself” approach to operations bear the burden of the albatross, which is increasingly acute for firms with appetites for acquisition. It is all too easy to get consumed by the day-to-day operations that are constantly “in your face.” However, successful recruiting, acquiring and assimilation of advisors, and their clients, requires vigilant focus on the strategic aspects of the business.

“Our current operations are completely swamped.”

It’s not uncommon to see firms in acquisition mode whose internal operations are already bursting at the seams from of their current client load. Forget about bringing on additional books of business. At a certain point, the realization hits that if the firm is to digest additional advisors and assets, its operations may require a complete revamp, as opposed to an incremental upgrade or another patchwork enhancement.

While adding technology and staff is one approach, finding the necessary skill and experience set is becoming increasingly challenging. The alternative for many advisors is to look to turnkey solutions that provide experienced operational teams and a complete technology platform.

“We looked for an outsourcing partner who could provide a complete technology and infrastructure solution to support our sophisticated investment management process, a partner who synthesized great process discipline, technology and people,” says Chuck Bowes, principal with Waypoint Wealth Partners, and independent wealth management firm with offices across northern and southern California.

“I am drowning in data, but can’t easily get the information I need to manage my business.”

This is another common issue with RIA firms, and one aggravated by a substantial growth in advisors and clients. Traditional portfolio accounting systems, typically the anchor information system for an RIA firm, are operational systems designed to process atomic data, e.g., transactions, positions, accounts. They are not, and were never intended to be, management information systems. Management of growing firms requires consolidated and filtered views of this myriad of operational data, views that provide key performance metrics and, ideally, clearly highlight outlying conditions enabling principals to “manage by exception.” In evaluating outsourcing options, firms should evaluate the outsourced solution not only for its ability to help operate the business, but for the tools and capabilities designed to help manage the business.

“I need a solution that helps me manage multiple affiliates.”

A number of firms are rolling in newly acquired advisors as semi-autonomous affiliates. While this alleviates assimilation headaches, it adds to the monitoring and management burden. These firms are turning to outsourcing firms that can provide a common platform engineered to provide the affiliates a system that feels very much their own, but provides centralized ‘command and control’ and the efficiency of a leveraged infrastructure.

One such firm with professionals experienced in partnering with advisors is Mentor Wealth Management, based in Richmond, Va. Managing Partner Jeremy Kuhlen says, “A successful integration strategy necessitates a business platform that helps the firm manage risk, operate efficiently, and is very attractive to prospective advisors and clients. Partnering with an outsourcing firm provides us that platform.”

“Portfolio monitoring and rebalancing is a huge time-sink for us.”

Many established firms have an investment management process that has evolved incrementally in an ad-hoc manner over the years. There is often a one-off strategy for each client, with any changes or periodic rebalancing taking the entire firm offline for a week or two so advisors can figure out and process the trades. Obviously, this approach scales very poorly with the substantial increase in client assets that accompanies firm expansion. Additionally, faced with this operational burden, there is a natural tendency for advisors to tilt their investment strategy decisions toward products and vehicles that are easier to implement versus those that may have better cost and performance attributes.

Partnering with an outsourcer allows advisors to focus their time and energy on the front end of the investment management process—client needs and strategy development—while offloading the implementation burden to a firm whose core competency is the ongoing execution of those strategies in a timely and efficient manner.

“Working with an outsourcer provides us a cutting edge platform that is driving expense ratios down, tax management up and affords single-day rebalancing for all of our clients,” says Peter Needham, CFP, executive vice president of Watchung, N.J.-based American Economic Planning Group. “Additionally, through leveraging our outsourcer’s platform, we can now offer cost effective investment management and operational support, in a private-label fashion, to other registered investment advisors, banks and CPA firms.”

“I need a fully functional ‘landing zone’ on day one.”

As any veteran advisor will tell you, going independent is a complex, stressful endeavor. There are a myriad of decisions and steps to take just to get the practice formed and a basic operational infrastructure in place, before being able to serve their first client.

Fortunately for breakaway advisors, a substantial industry has formed to support advisors making this transition to their own business, including legal, compliance, financing, office, investment management and operations. Those going independent should think of these outside service providers as a network of business partners who can help reduce the time, risk, cost and complexity of the transition.

“Breakaways face an array of initial operational issues that can distract them from what really matters,” says Rich Gill, vice president of business development and acquisitions at Focus Financial Partners, based in San Francisco and New York. “We work closely with our prospective firms to help them line up their outsourcing partnerships early on so they can focus attention on helping their clients through the migration and continuing the advisory relationship.”

“We need help working with multiple custodians.”

Quite often, adding additional books of business results in additional custodian relationships. Many firms’ back office and trading operations have evolved to match the specific process idiosyncrasies and online tools of their particular custodian. The prospect of quickly morphing into a multi-custodian operation can be daunting to internal personnel, and is frequently the catalyst for shifting to an outsourcer that works with all the major custodians. The end result is a single, consolidated interaction point provided by an independent third party.

The swelling ranks of independent RIAs are shaking loose any resemblance of the cottage industry of old. In its stead are practices of growing sophistication, establishing connected networks of strategic, symbiotic partnerships. It is a natural evolution of the industry that is resulting in greater net value to advisors and their clients.

Michael Stier, a 26-year industry veteran, is president & CEO of Adhesion Wealth Advisor Solutions, based in Charlotte, NC. Adhesion’s WealthADV platform is an outsourced solution for independent RIAs integrating unified managed accounts, custom investment management, and client performance and practice management reporting. To contact Michael, visitwww.adhesionwealth.com.