September 27, 2019
That said, growing strictly for the sake of growth, or “breaking even at a higher and higher level,” as my partner Skip Cowen likes to say, is not a fundamentally sound business strategy. In 2018 alone, there were more than $500 billion in assets under management that changed hands between registered investment advisors, with the 10 largest transactions accounting for almost 80% of this number. Like in many industries, the big are getting bigger.
Many of these deals occur to facilitate succession planning or are motivated to achieve scale for strategic reasons, such as better technology, management, and back office support. Many transactions, however, are motivated primarily by bottom line profitability and entity value. This often means eliminating staff and automating customer service, dramatically altering the client experience. Scale often means standardization, and that stifles flexibility and creativity.
Cornerstone operates in a “sweet spot” that balances having the scale and resources to compete against large regional or national firms with being nimble enough to successfully manage change and opportunity in the marketplace. Being nimble, in our opinion, is one of the most important skills we have, and it is something we foster within our organization.
Being nimble starts with building a culture of creativity and innovation. The feedback we get from conducting thousands of meetings per year helps drive new initiatives as we ask ourselves questions like:
- How do we enhance the services we currently provide to our clients?
- In what other ways can we leverage our capabilities to attract new clients?
- How do we improve our internal processes to become more efficient on the quantitative side of our business so we can focus on developing and nurturing relationships, or the qualitative side of our business?
- How can we ensure that we respond with an appropriate sense of urgency to client requests?
- How do we continue to differentiate ourselves in the marketplace?
Source: DeVoe & Company RIA Deal Book™ - Fourth Quarter 2018