The Substantial Benefits Of Working With A Broker Dealer That Is Built To Last

Working with An Owner Operator BD versus a PE Owned BD Can Be the Difference Between Stable Foundations for Growth or Persistence Chaos

We know you value your independence. That’s one of the main reasons you became a RIA. But working with a private equity backed firm isn’t exactly what you thought it would be. While there is growth capital available, the private equity blueprint is always the same. Cut costs, optimize revenues, increase fee streams and prepare for the exit in the next 2-5 years (ie Lightyear’s Sale of Advisor Group under 36 months). The talking points are always good, but it is always the same outcome: persistent chaos.

The warning signs are always the same. New cost structures, lower payouts, forced technology architecture, proprietary product sales emphasis, forced vendor selection all in the name of “synergies”. The truth is behind the scenes there are EBITDA adjustments being cobbled together to repackage the financials into EBITDA growth for either another PE fund or strategic buyer to make sense of them after the exit. These short-term guided decisions about platform design are driven by IRR timelines for the PE firm to hit their carried interest on the profits from the sale. What they are NOT are long-term decisions based on desired long-term business relationship with their Advisors or the underpinnings of strength in the industry. Firms who want to be here past 2030 operate differently, they have a different DNA, they value relationships and spend time forging partnerships with their Advisors. Try to look a PE acquisitions guy in the eye and expect him to be your point of contact in 10 years from now. Good luck.

The worst offenders of these blueprints tend to retrade your economic deals directly by taking a percentage off your top line revenue or indirectly by implementing a lot of new firm fees. PE backed firms promote management that is more in your business for cost savings or “synergies” than supporting the growth of your practice. The freedom and upward mobility you thought would be there as an Independent RIA may not materialize in this environment as they focus on their short-term business plan.

If the above wasn’t enough, couple it with constant re-orgs and the ever-looming exit sale of the business or liquidity event. Working within a private equity firm can seem like being on a ship in the middle of a furious storm. If you want stability with a partnership approach within a supportive environment, it may be time for a change. It may be time to join a firm whose Independence is Built to Last.

An owner operator firm is focused on the growth and well-being of its Advisors and employees. Rather than taking a percentage of your revenues, the firm makes money through its commission-based products and insurance sales. You’ll also have the back-office support and freedom to grow your book without the specter of a buyout or constant re-orgs.

Instead of always being on the hunt for a buyer of the business, an owner operator firm focuses on longevity. While the run-up to a sale of the business can cause reorganizations and other disruptive events, focusing on longevity requires a completely different outlook on an Advisor as a client and the creation of “Advisor-Client Lifetime Value”. This is what management should focus on at broker dealers.

Growing a firm for the long-term means investing in its people and ensuring entry into the right markets. This alignment of people and markets makes it easier to create a stable culture within the business where smart, proactive compliance is business friendly. This compliance driven, pro-business culture dictates the quality of future hires and values white glove service for the Advisors of the firm.

Understanding the culture and intentions of the owners of the firm you work at can be the smartest two questions you ask when selecting the BD you will join in the future. Not asking the hard questions upfront in due diligence may mean you live in a persistent state of chaos or even more ironically, back at a wire house or bulge bracket firm (ie United Capital/Goldman Sachs). If you want to learn more about open architecture and why we believe Independence Is A Journey (M) please contact us today.