Schwab Institutional Releases Two Reports to Help Independent Advisers

In conjunction with Moss Adams LLP, a provider of management consulting services to advisory firms, Schwab Institutional has released two reports to aide independent investment advisers with organization and business development, the leading barriers to firm growth.

Although independent investment advisory firms are growing at triple the rate of other financial firms, they are confronted by many barriers to growth, Schwab said. Last fall, Schwab’s RIA Benchmarking: Growth Trends Study, found that although such firms did have high growth rates, nearly two-thirds of them reported that they had at least one significant barrier to growth, most of which centered on inefficient organizational structure or lack of clarity around business development.

“It’s a great time to be an independent adviser – but many firms are looking for guidance on how to manage their rapid growth, overcome barriers to growth, and maintain a superior level of client service,” said Deborah Doyle McWhinney, president of Schwab Institutional, which offers custodial, operational and trading support for independent fee-based investment advisers, in a company press release.

Building an Effective Organizational Structure

The first white paper, “Building an Effective Organizational Structure,” discusses how advisers can select the best operational structure for their firm. According to the report, there are three main organizational structures: solo groups, which have little or no structure; emerging ensemble groups, in which individual and department specialization are viable options and structures begin to emerge; and mature ensemble groups, which can have diverse structures, including departments and service teams.

Schwab said that the white paper found that those advisers who make organizational structure a priority have better performance, including more satisfied clients, better business growth, and increased profitability. The best organizational structures are flexible so that they can adapt as a firm grows, so an adviser can focus less on day to day issues and spend more time addressing the long term goals of the business. They should allow for clear definition of roles and responsibilities for each person.

According to the report, there are five considerations for determining which of the structures is most appropriate for an adviser’s company:

  • stage of development;
  • strategic plan;
  • strategy or strategic differentiation;
  • employee development and retention needs; and
  • changes in organizational characteristics.
Achieving Growth with the Right Business Development Structure

The second paper, “Achieving Growth with the Right Business Development Structure,” discusses common business development models and offering advice on how advisers can select one for and implement it at their firm. It is necessary to align a business development structure with a firm’s strategic goals, culture, values, and ideal client profile, Schwab said.

The report discusses the pros and cons of three business development structures:

  • Principal-Centric – Firm principals are responsible for business development, which is the traditional approach used by most firms.
  • Dedicated Model – Specialists inside the firm are charged with business development, giving clear accountability for client acquisition.
  • Fully Shared Model – With business development responsibilities shared across the entire firm, this model encourages collaboration between principals and professionals, and reduces risk by spreading efforts across a number of individuals.

According to Schwab, the principal centered model is used by more than 80% of firms with less than $100 million in assets under management, but only 40% of those with over $250 million under management. The other 60% of those with over $250 million under management rely on either a fully shared or dedicated model.

The latest two reports are part of an ongoing series called the Schwab Market Knowledge Tools (MKT) reports, a group of industry research reports, white papers and how-to guides to enlighten investment advisers on the trends and competitive challenges facing the industry.