Recent research by Axos Advisor Services supported the importance of Operations professionals at RIAs by declaring that “71% of elite RIAs hire professionals to focus on operational issues, compared with 41% of other firms.”  The report continued, “As the [RIA] grows and you add more staff members, you might consider designating a Chief Operating Officer to manage teams, review processes and oversee resource allocation.” While speaking with Michael Kitces for his Advisor Success Podcast, we discussed the hierarchy of RIA operations professionals, ranging from Operations Manager to Director of Operations and ultimately to Chief Operating Officer.  Michael asked me to clarify the difference between these job titles, or, more specifically, “What does an RIA ‘get’ as they move up the hierarchy of these positions?”  My answer to him was simply, “Strategy.”

When an RIA hires its first non-revenue producing Operations professional, the goal is to remove many of the administrative burdens from the RIA owner’s (and primary financial advisor’s) shoulders.  An Operations Manager will execute many of these tasks, adding value to the organization by freeing up the RIA owner to focus on client service and business development.  Most often, these tasks include Compliance and HR duties – the RIA owner simply states, “I don’t have time for these – you take them!”  A Director of Operations, like the Operations Manager, can execute many of these tasks, but will also bring more strategic thinking to the organization.  Instead of merely executing on the tasks the RIA owner needs to delegate, a more seasoned Director of Operations will be able to strategize about what tasks he or she should be conducting and provide more focus for the RIA.  As we discussed in this article for Wealthmanagement.com, most RIAs only think of, “We want more…” when it comes to their strategic thinking.  Having a professional who isn’t distracted by client service issues or who isn’t primarily focused on searching for new clients can think more in terms of, “What do we want more of?” This level of thinking can bring a ton of value to the RIA, as reflected in Axos’ research.

A Chief Operating Officer is an even more experienced operations professional that brings the ultimate strategic thinking to the organization.  A COO can help the RIA determine things like, “What type of business are we building?” “What types of clients are we hoping to attract?” and “What service offering will best attract those types of clients?”   A good, strategically minded COO is worth their weight in gold to any RIA.  As Mark Tibergien pointed out in this recent podcast with Doug Heikkinen, “RIAs have grown so fast, they’ve lost focus on strategy.  Without clarity of strategy, it makes it difficult to know what kind of people they should hire, how they should invest in the business, and what their processes should be (for the type of firm they are building).”  Every decision for the RIA starts with strategy.  As we wrote in this article in 2020, “Starting with a clear understanding of who you are looking to serve and how you want to serve them will eliminate a lot of headaches down the line.”  This applies to organic or inorganic growth strategies – you must know your end goal before you can build the proper processes and infrastructure to get there.

During their podcast interview, Doug Heikkinen asked Mark Tibergien about the biggest challenge facing RIA business leaders, and Mark replied that in the past, “As practitioners, (advisors and RIA owners) used to simply manage a book of clients, (but with the dramatic growth in the RIA industry) they find themselves now managing real businesses.”  In order to run a “real business,” Mark points out that business owners “need to think about things like strategy, and structure, and people, and processes, and profitability, rather than the way in which they used to (solely) think about building up clients and generating income.”  The problem is, as the firm’s primary rainmaker, there simply aren’t enough hours in the day for RIA owners to manage client relationships, develop new prospects, and think strategically about the direction the business is headed.  They must bring in a professional who can manage the business for them.

As stated above, when the RIA is small and is making its first “professional management” hire, the primary goal is simply to find someone who can execute the tasks that nag at the owner because he or she has no time to get to them.  That hire is typically an Operations Manager.  As the business continues to grow and more and more complexity comes into the organization (more employees with specialized functions, multiple service offerings, multiple locations), this professional manager needs the ability to think more strategically and proactively about the future – they can’t merely execute the tasks the RIA owner hands them.  Enter the Director of Operations or Chief Operating Officer.  As RIAs evolve from practices to true enterprises, the conventional RIA wisdom of, “If you aren’t bringing in clients you aren’t valuable to the organization” becomes backwards thinking since it is the “non-revenue producing” strategic thinker who will lead the enterprise forward.

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