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Matt Sonnen, PFI Advisors

Industry Spotlight > RIAs

Here's the Question You Must Ask Before Starting an RIA

By Jane Wollman Rusoff

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Breakaway advisors launching their own RIAs want to run their own show. But first, they must decide what type of client they most want to attract.

“RIAs would grow more aggressively if they were to find a niche and figure out: This is the specific service we’re offering for this specific segment of the population,” argues Matt Sonnen, founder and CEO of PFI Advisors, which helps RIAs start their own firms and existing RIAs become more profitable.

Establishing a profile of their ideal client determines the services the RIA owner will offer, along with the right technology to deliver them, says Sonnen. Failing to pinpoint a niche can lead to onboarding clients whose needs the RIA cannot successfully fulfill.

Being a great financial advisor is one thing, but running your own firm is another, and RIA owners are “not always the best business owners,” maintains Sonnen, a 2022 ThinkAdvisor LUMINARIES award honoree for thought leadership and education.

Setting expectations tops the list of the ways in which Sonnen helps breakaways. As business owners, they’ll have much more on their plate than they envisioned. Outsourcing has limitations, he notes.

PFI offers some special services for RIAs, like courses to learn the ropes about running operations, The COO (chief operating officer) Society and the COO Roundtable podcast.

In the years right before PFI’s opening in 2015, Sonnen worked extensively with breakaway advisors as vice president of strategic operations at Focus Financial Partners. Sonnen’s resume also includes time at Merrill Lynch and then Luminous Capital, which, as COO and chief commercial officer, he helped grow to nearly $6 billion in assets in under five years.

Sonnen and his wife Larissa Marcontell Sonnen, PFI co-founder and COO, are notably philanthropic in supporting pediatric charities, such as the Layla Paige Foundation, which raises funding for terminally ill children. This focus was inspired by Sonnen’s late daughter, Layla.

ThinkAdvisor recently interviewed Sonnen, who was speaking from Los Angeles, where PFI is based. Here are highlights of our conversation:

THINKADVISOR: What’s a key growth strategy for RIAs?

MATT SONNEN: RIAs would grow more aggressively if they were to find a niche and figure out, “This is the specific service we’re offering for this specific segment of the population.”

There are countless examples showing that firms grow faster when they get more focused on who their ideal client is.

Do you talk about the importance of this with your advisor clients?

Yes. [For starters], an advisor’s ideal client determines what services they’ll be offering, and, based on the niche they’re serving, the technologies, processes and systems they need to serve those clients.

You can’t even consider what your tech stack is until you know who your ideal client is.

So even from a technology perspective, you need to start with knowing your client niche and how you’re going to serve it.

What can happen when RIAs don’t determine that?

They [lament], “We keep taking on the wrong type of clients. They have needs outside of what we specialize in.”

So they have to think [up front] about the type of client they want and the type of service offering they’re providing to those clients.

Also, buyers who have just acquired a firm get so focused on deal structure that they forget about matters like integration.

What issues along these lines can arise when one RIA acquires another?

There has been so much M&A activity in the last couple of years. Many of the advisors are just looking at the numbers and not thinking, how does this RIA’s client niche fit into ours?

They want more advisors, more clients. We say, “What type of advisors do you want more of? What type of clients do you want more of?”

Do advisors contact you before they leave a wirehouse?

Yes. They’ll say, “We want to start an RIA from scratch. How do we begin?”

We’ll work with breakaway clients several months ahead of their resignation, setting up things like real estate and payroll, and recommending marketing firms.

In what way do you help them the most?

Setting their expectations appropriately. We tell them that even though we can take as much off your plate as possible — introducing you to vendors [and so forth] — you’re still running the business, and the buck stops with you.

We’ll set you up with a great performance reporting vendor. But there’s still going to be a lot of work on your lap; you’re the one who needs to decide what your story is. It’s still going to be up to you to design the performance reporting.

What else do you tell them?

A lot of breakaway advisors think, “As long as I’ve hired a CRM, I don’t have to deal with client data anymore.”

No! It’s still going to be up to you to ensure that the data is clean and inputted into the system correctly.

You’ve hired a company for billing and think you don’t have to worry about billing anymore. No! When you bring on a new client with seven account numbers in their household, it’s still your firm’s responsibility to set up all seven correctly.

What gets a breakaway advisor anxious?

“How do I recreate the products and services I had at Merrill Lynch, Morgan Stanley, Ameriprise, LPL” or another large firm?

RIA owners are great financial advisors, but they’re not always the best business owners. We help them figure out the structure of their business, like the roles and responsibilities of their team.

We tell them that there’ll be a lot more on their plate than they had at the wirehouse. So they’ll probably have to add bodies. We help them think through what their first hires will be.

What’s critical for these advisors to know concerning outsourcing?

The goal is to keep your employee costs as low as possible, but there are still going to be components that need to be handled internally.

Even if you outsource compliance, someone at your firm needs to run around and collect quarterly transaction reports from the employees. Someone needs to ensure that all the employees are certifying the compliance manual on an annual basis.

If you’re offering a new product, someone needs to call the outsourced compliance solution [company] to let them know if you need to update your Form ADV or make changes to your client agreement.

How do you help your clients who are existing RIAs?

They’ll call and say, “We think we’re doing something wrong; revenue goes up every year, but profitability is going down. Are we overspending or underspending on technology or people?”

We give them tips on how to run their firms better.

Are your clients asking about AI technology?

Not too many. I don’t think it’s fully baked yet. So we haven’t been going down that path too much.

But we absolutely talk to [breakaways] about [required] technology: custody, performance reporting tools, CRM, access to research — that’s a big one because they usually had a huge research group behind them at the wirehouse.

How does your COO Society help RIA business owners?

A lot of chief operating officers say that operations is something you learn on the job, that it’s just trial and error and you figure it out as you go along.

I researched it deeply and never found courses on how to be an operations officer. So in 2021, we launched an RIA-specific operations consulting, coaching and course platform.

We also have The COO Roundtable podcast and a discussion forum, where, on a monthly Zoom call, members can ask the group operations questions specific to our industry. That way, they help one another.

You previously worked at large firms like Merrill Lynch and Focus Financial Partners. What was your biggest challenge when you opened your own company?

The biggest challenge for any entrepreneur: Where are my clients going to come from?

I decided early on that we would go the concept marketing route and write white papers and blog posts. Later, we started the podcast.

The articles we publish on the blog get shared. People find us that way and then reach out when the time is right for them.

For example, they’ll contact me, “You wrote about M&A and what buyers are doing wrong. We’re going to make our first acquisition, and we can use your help.”

Jane Wollman Rusoff

@jrusoff2

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