Top resolutions for RIAs: Get out of cash and unleash the rainmakers

As 2010 begins, many RIAs are focused on fixit strategies. After a year-and-half of market turmoil, they are anxious to bring some rationality to the portfolios in their care. They want to rebalance, retune, and get a read on the market: in short, they want things to get back to normal.

The list I made of advisors’ top resolutions mostly reflects that desire. But the smarter advisors I talked to have added a few other resolutions to their lists. While they hope the market gets back to the days of heady RIA growth, they are preparing for what could be stiff competition from wirehouse brokers newly emboldened by fat retention checks.

In that atmosphere, RIAs will need to do more than rely on referrals and market gains to achieve healthy growth in 2010. They’ll need to make a plan and stick to it, according to Mark Palmer, managing director of business consulting for Schwab Advisor Services.

“You have a backdrop of a more typical business environment,” he says. “[But] you need to move from passive business plans to more deliberate ones.”

For a story about how one top advisor is preparing to grow again in the face of competition, read: How one top adviser plans to capitalize on 2010 growth opportunities

Meanwhile, here are some of the New Year’s Resolutions I’m hearing from RIAs:

• Get back to a normal mix of stocks and cash/fixed income. Faced with what looked like a death spiral for the markets early in 2008, many RIAs pulled back on stocks. The intensity of the recovery caught them by surprise, and now they find that the equity portion of their portfolios is at 30% or lower.

Parking money

• Get out of cash without overpaying for bonds. In 2009, many RIAs erred on the side of parking money in cash. The cash emphasis got exacerbated as bonds got called “left and right,” as one advisor put it. Agency bonds were called especially often. Reinvesting was unattractive to some RIAs who didn’t want to lock in low rates.

• Get a read on the market so that decisions can be made in a rational atmosphere. Some RIAs deferred decisions on buying stocks because they believed the market was pushing artificially higher in late 2009. They believed that portfolio manangers were buying shares to dress up their portfolios for end-of-year reviews.

• Get a handle on a raft of new regulations. Some RIAs admit to being blown away by the onerous demands of some states. For example, one RIA showed me the three pages of privacy-related requirements being imposed by the state of Massachusetts. The new rules apply to any advisor doing business with clients in that state. Extensive dictates surrounding shredding, locking documents and encrypting communications were there for starters.

• Stay a step ahead of fellow advisors and on-the-mend wirehouse brokers who will all be putting heightened emphasis on winning new accounts.

• Stay open to diversifying the business mix. For instance, some RIAs who thought about getting involved with 401(k)s says that they will give the management of those retirement assets a second look.

Rainmaking

Palmer, for one, is counseling RIAs that success in 2010 will demand renewed focus on winning new clients.

This means that firms need to do more rainmaking. Hiring people who are merely good at managing existing accounts doesn’t go far enough, Palmer says.

“That’s not going to suffice,” he adds.

The other way to do better is to free up the time of existing rainmakers for drumming up new accounts. Better technology is the key to those efforts, Palmer says.

In general, Palmer finds that advisors using customer relationship management software are leaving too much on the table. In Schwab’s most recent benchmarking study, RIAs were asked to check which CRM functions they utilized. Here are the findings:

Prepare and send client mail: 71%
Integrate with email: 69%
Assign and track workflow: 62%
Access CRM remotely: 61%
Create standard task lists: 50%
Store client reports and paperwork (e.g. integrate with document management): 42%
Integrate with portfolio management system: 32%

RIAs who don’t figure out how to make the most of their resources to capture new assets will be facing competitors who are willing to go the extra mile.

Teams at Merrill Lynch

“RIAs are never really competing with Merrill Lynch [and its tarnished brand],” Palmer says. “They’re competing with teams at Merrill Lynch.”

He adds that demoralized wirehouse brokers are not likely to stay that way for long.

“It’s amazing how a big check can settle your emotions,” he says.