The biggest challenges advisors face today are efficiency, staffing and identity. That's the perspective of Mark Tibergien, CEO of Pershing Advisor Solutions. "I think probably the No. 1 area of angst for advisors running their own firms is the efficiency of their business," he says.
Financial Planning sat down with Tibergien to discuss both Pershing's own evolving business and that of the advisors with whom it works. Here's a condensed version of the conversation.
What are the biggest concerns you hear from advisors?
I think the No. 1 area of angst for advisors running their own firms is the efficiency of their business. It's becoming pretty apparent that advisors are not struggling with finding new clients; what they're struggling with is how to do their business smarter. Many are doing things the way they've always done them, so they continue to be pretty inefficient.
The second one I used to characterize as a succession issue, but it's more about building a business to last, rather than building a business to sell.
The third area has more to do with clear positioning of advisor practices. What makes you stand out in glorious Technicolor? Without clear positioning, it makes it difficult for them to know which part of the business they should invest in.
What does Pershing offer advisors?
We work with advisory businesses that are growth-oriented, that serve clients with complex lives. Typically that means high net worth. When we look at the question of what we're going to do for advisors, we have to put it through that filter - from a technology standpoint, a product standpoint, a client-service experience standpoint and a practice-management standpoint.
In the practice management side, we focus on growth management, operating efficiency, human capital and risk management - the primary levers of success in advisory firms today.
When you talk about risk management, what are the risks?
Reputational risk, client risk, financial risk. All the things that could torpedo what you are attempting to do. We try to encourage a culture of safety.
On the human capital side - this is probably the biggest area of concern for us - we have a profession that's largely boomer driven, both in terms of clients and owners of firms. If you're not careful, you're building a business around a depleting oil well, and that's a risky proposition. You have to think about how you connect to millennial and next-gen clients.
Business issues we address can be as basic as: Is your strategy still relevant? Are you structured to support your strategy? Do you have the right people doing the right things in the right way? Are you managing to profitability? Are you in tune with what your clients are saying they want and need? When we engage with an RIA firm, one of the first things that a relationship manager does is create a development concept. It's almost like a personal financial plan, but it's an agenda of issues.
How can an advisor be successful working with Gen X, Gen Y clients?
You have to approach your business in a way that is almost like a laddered portfolio: You have a core of basic business, but you also have to be investing for the future in terms of the clients you're working with. The advisory firm of the future is going to be a true ensemble, one that actually creates career paths and fosters the development of younger associates. There will always be solo practitioners, but it's a harder model to sustain these days.
The issue, though, is: How do we connect with people on a different level? The boomers wanted to build a relationship with you, and if they liked you, they would do business with you. If you look at Gen X or the millennials: They're not interested in the relationship; they're interested in competence.
You've grown assets dramatically over the last five years. As you attract new business, how are firms working with Pershing?
It's a mix. Most firms are multi-custodial. I would say that two-thirds of our growth has come from our competitors. In some cases it's a wholesale move or a majority move. We do have a high minimum - $100 million of assets for the firm, or at least a commitment to get there within a period of time - so it's a substantial relationship. When we look at breakaway teams, almost all of the assets end up with us. In most cases they're making a dramatic change, and they don't want to have too many relationships.
You now have about 500-550 firms?
It's around there. The number of advisory firms that we work with hasn't changed much in five years, but the volume of assets has.
As both a clearing firm and a custodian, what does the blurring of the fee vs. commission business models mean for Pershing?
Part of our opportunity is to help broker-dealers reposition themselves as financial services companies rather than producer organizations. We're agnostic, because we can serve you wherever you are. What we want to do is make sure that you're a viable entity that has a relevant strategy. The shift to advisory from our standpoint is a healthy shift, but it doesn't mean that those who are purely transactional are irrelevant; it's just that they have to be clear as to what kind of business they're in.
Our RIA Complete program is a coaching program that connects the dots between traditional brokerage and traditional advisory. It's geared around the hybrid and dually-registered advisors.
Do the new joint Pershing-BNY Mellon offerings - a combined bank/brokerage custody offering and a private banking program - change your conversations with advisors?
After the merger with BNY Mellon, we wanted to focus on the clients we serve and find synergy. We found that about 15% of the RIA market was using a bank custodian. It didn't take much to figure out that we should tie these businesses together. We did a soft launch, and in the first three weeks, we were introduced to 21 situations that brought over about $1 billion of new assets that were sitting in other banks.
As for private banking: When we were attracting large teams from wirehouses, they were saying, "What do you have in terms of banking solutions?" We created a collaboration where we now offer things like jumbo mortgages and investment credit lines. I call them toy loans for rich people - you want a boat, you want a plane, you can borrow your millions of dollars in order to do that.
What's exciting is the absolute synergy between BNY Mellon and Pershing - it's what was envisioned when they talked about the merger.
Rachel F. Elson is executive editor of Financial Planning.