An ambitious startup wants to unite the fractured universe of RIAs, impose standards on the practitioners, get better deals from vendors and educate potential clients on the merits of the independent channel. The founders say success will depend on how quickly they can get their message out to persuade others to get on board: They want to get the services up for the member RIAs in 2013, which gives them less than a year to build a brand.
“The foundation of everything we’re doing is around consumer education and building a brand,” says Steven Lockshin, who says the venture, dubbed Advizent, is generating rapidly growing interest among registered investment advisors. “I’m not going to compare myself to Facebook, but look at what they did. The world moves at a different pace now than it did 50 years ago.”
But particularly in financial services, building a national brand from scratch is “a formidable challenge,” one that would take a campaign of five years, says marketing expert Lou Rubin, managing partner of OutGrowth Consulting in New York. And while luring RIAs to join a network is challenging enough, luring new clients from current national brokerages or other advisory channels is notoriously difficult. Investors are loath to change for a variety of reasons, particularly if it means paperwork or unfavorable tax implications, he says.
“You’re asking people to change who they’re doing business with now, and that’s an emotional decision—as much as financial corporations believe people are driven rationally,” he said.
Lockshin, who’s chief executive at Convergent Wealth Advisors, a Maryland-based registered investment advisor, and co-founder Charles G. Goldman, the former head of institutional services at Charles Schwab and Fidelity Investments, are the sole investors in Advizent (pronounced “add-VIZE-ent”). The two have known each other since Lockshin was a Schwab client about 10 years ago, Goldman said.
They want to market Advizent as a gateway for consumers who are looking for conflict-free investment advice but don’t know where to go for it. Most investors are unfamiliar with the RIA model. Furthermore, what they know about “financial advice” is skewed by national ads focusing on products and large brokerages, they say.
To generate investor confidence, Advizent would promote a handful of best practices that its member RIAs would be required to sign on with. In essence, they envision putting a halo around vetted advisors who meet certain criteria that will be established by a board of consumer-oriented experts, Goldman says. Some of the things that board is likely to want inspected would include the financial practices’ business structure, and whether the data in the firms’ ADV forms are clear and consistent with what the firms actually do.
“Our interest is articulating what makes a great independent firm, and then teaching the public about what that independent advice is all about,” Goldman says. “There’s really nobody out there trying to create what we call a Good Housekeeping Seal of Approval around what independent advisors do.”
That means a national ad campaign, among other things. Schwab Advisor Services tried something similar last year with its “RIA Stands For You” campaign, yet it is unclear how much that raised awareness among retail investors. Goldman called the Schwab campaign a good effort, but at a budget he estimated at just a few million dollars, it fell short of making a real difference. An effective campaign would cost $30 million to $50 million, he estimated.
“Branding will take time—how much, I don’t know,” Goldman says.
Beyond making the RIA channel more appealing to investors, another objective is to squeeze competitive pricing from custodians, asset managers and other service providers. Goldman said they hope to start providing those benefits in 2013.
“This fragmented business is very, very tough to understand and penetrate,” he says. “When you go to Merrill Lynch, it’s easy. You go to the people who build product, you make a home office sale, and then you implement that with Merrill Lynch the way they want you to. In the RIA business, you have no one to go to and say what products (are needed) and how do we cover you better. We think we can provide that service.”
Most RIAs lack the heft to compel discounted service from providers. “You’re competing against tremendously deep pockets with the brokerage firms, with the banks, and the really big money managers,” says Seth Streeter, president of Mission Wealth Management in Santa Barbara, Calif., with $750 million in AUM.
Advizent won’t take equity stakes in advisor practices, as many aggregators do. It would make money by charging its RIAs membership fees on a sliding scale—from $25,000 to $100,000 annually, based on firm size, Goldman said. That appeals to advisors like the 42-year-old Streeter. “I don’t want to sell my company. I want to still grow.”
The venture will also collect referral fees from advisors. In addition, members will share business metrics with the firm that will be aggregated and used to establish benchmarks for the RIAs to measure against industry peers.
More than 20 firms with over $50 billion in assets have told Advizent they’re interested in just the past few weeks, Goldman said; the founders say the venture needs $100 billion in committed assets to get started. He estimates about 2,000 RIAs in the country have assets of more than $250 million, the minimum AUM for joining the venture.
“We think if we had 500 to 1,000 firms, that would be a fantastic success,” he said.