Unlock your independence

Move Beyond Antiquated Technology

Welcome back to another episode of the Independence Playbook. In today’s episode, John is joined by Frank Coates, Chief Technology Officer. Technology is a vital component of any business, but its rapidly evolving environment can make it more difficult for advisors to stay abreast of the latest capabilities and features. Tune in as Frank and John discuss the most common questions advisors have regarding technology.

Podcast Transcript

JOHN SULLIVAN: [00:00:00] Hello.  This is John Sullivan and I head up Business Development for Dynasty Financial Partners.  I’m hosting a podcast series called “The Independence Playbook” and we’ve covered a couple of topics so far.  This particular episode is going to focus on investments.  Today, I’m joined by Nick Gerace who’s the senior vice president at Dynasty Financial Partners, Investments team.  — Welcome, Nick.

NICK GERACE: Hey, John.  Thanks for having me.

JOHN: Yeah, good to have you here today.  And I know you deal with a lot of advisors and talk to a lot of advisors at all stages of the process as they’re thinking about to move to independence.  Can you talk about some of the biggest challenges that advisors face when they think about their investments at their current firm and how they’re going to make the move to an independent model?

NICK: Yeah.  Thanks, John.  So, you know, our first conversations with advisors, as they just start to dive into… even the concept of independence, they’re so accustomed to having this large entity behind them in this large organization that kind of… not necessarily dictates what they do from an investment perspective but is… the real, you know, power behind providing them access to product.

And I think their initial reaction is, you know, “How do I serve my clients without that backing… without that access?”  Really, what it comes down to is, “Can everything I do for my clients now, as it relates to investments in portfolios, can that be replicated in the independent world?”  And really, you know, what we see the answer is resoundingly, “Yes,” no matter what type of investments you’re utilizing for your clients.

I mean the most common question we get relating mapping, right — so moving your book of business and your investment portfolios from one organization to an independent firm — really is around SMAs which, you know, finding a partner, whether that’d be a tamp or a platform partner that provides access to a large swath of single contract or even dual contract.  SMA access is really important.

[00:02:00] But what you’ll see is that the asset management world sees the independent space as such a tremendous opportunity that they’re open for business and eager and excited to provide their products and solutions to independent advisors.  We see that all day long.

Further than that, if you look at the mutual fund universe, the custodial partners in the independent space, that’s where you go for mutual fund access and exposure.  You’ll see the lists of products and fund families that they have available are just as big if not bigger than a lot of the big wire houses.

We see very few instances where advisors have significant mutual fund or SMA holdings where they can’t be mapped over.  From there, ETFs, equities, I mean these are solutions that are traded on the exchanges — you know, anywhere you can buy or trade equities or ETFs — you know, the Schwabs and Fidelitys, Pershings of the world.  It’s all right there and at your fingertips as an independent advisor.

We’ll talk later around things like alternatives and derivatives.  But again, we just see a tremendous amount of success in advisors being able to move that book of business and replicate exactly what their value prop from an investment perspective is for their clients into the independent space.


JOHN: That’s a great answer, Nick.  So we get the advisors comfortable, broadly, that they’re going to be able to transition the business, that the solutions are there on the independent side.  As we get a little further into the process, what are some of the top questions advisors have as they get deeper into the weeds on the move?

NICK: Yeah, I think the impetus for a lot of the move for advisors is around growth and wanting to be able to attract maybe higher end clients, work with more family office-type clients.  [00:04:00] We see that really often.

And a lot of advisors then, once they get comfortable with, “Okay, I can replicate what I do now but what additional things can I do to better serve the client base that I desire to attract to my business?”

And really, what it comes down to is we’re really big believers that the independent space is a much better environment for serving the ultra-high net worth families of, you know, the economy and of the market because of the true open architecture nature of independence — so thinking about things like alternatives.  Whereas in a larger organization, you have a select menu to choose from as it relates to things like private equity, private credit.

We think things like the OTC derivative market whether it’d be structured notes or hedging solutions where when you’re captive to a larger bank, you can shop at one desk.  Right?

Well let’s move outside of that construct, become a true client of the street on behalf of our clients, and see things like advantageous pricing, see things like access to more maybe [boutique – 00:05:07] deals that aren’t necessarily of size to be attractive to a larger bank to distribute to their advisor force.  We think those things are really powerful.

Just today, one of our largest advisors in NRIAs in the network has a large family office client that they work with who wanted an idea for a biotech specific hedge fund.

Well if that advisor is at a large banking institution, they have one place to look, right?  If they’re at a large warehouse, they have the auth test.  They have the auth team.  They have a menu.  Whereas as an open architecture, truly independent firm, they can act in that client’s best interest and go shop the street and find out what’s available to do idea generation and assist a really large client.

That’s a big differentiator for an independent firm versus someone who’s inside of a larger institution.

JOHN: Great, Nick.  [00:06:00] And I see those examples all the time where it’s just a broader menu and an access to certain products and services that just aren’t available in the siloed market, if you will.

Tell me about some of the biggest surprises that advisors get as they either come through the transition or once they’re out… What are some of the things that are surprising them in terms of what’s available and how things play out?

NICK: Yeah.  So it’s really funny that I think what you see is what’s the best… The biggest attraction from an investment perspective to the independent space is true open architecture.  But I would argue that that might be the biggest obstacle as well.

Like true open architecture means you have access to such a massive variety… such a massive like menu of things that you can do for your clients.  And we do see advisors start to get this shiny object syndrome.

When you know you have unlimited capabilities, developing that into a finite approach and into a finite process for your clients to make what you do scalable and repeatable and not spend too much time trying to find solutions and products and be able to truly focus on A] serving your existing clients and B] finding new clients so that you can fuel that growth that you so desire, it becomes a little bit of a challenge just because, again, it’s just such a huge ocean of opportunity as it relates to investment ideas.

So we do see that as a surprise.  We do believe that the way to fix that is to find a platform provider or, you know, a partner to help you whittle down that universe.

You still, as the advisor, have the end say in how you invest your client assets.  You still are truly independent.  But there’s nothing wrong with finding a provider who spends all of their days finding what we consider to be or they consider to be best in class, products and solutions, to be able to just make your life a little bit easier as it relates to making investment decisions and finding solutions for your clients.

JOHN: That’s excellent, Nick.  [00:08:00] So let’s now talk a little bit, and it kind of flows from that same answer.  But once they’re through the transition –the assets have come over.  They’re up and running — what are some of the best practices that advisors should be thinking about implementing when they start the new firm?

NICK: Yeah.  So I think it’s a great question.  And I think about some of the most high-performing firms that we see on a day-to-day basis — the folks who are really, you know, firing on all cylinders — they do a couple of things.

Number one, we, at our firm, believe in, you know, models-based approach — and not that every client has to be invested in the same model because there’s tax issues and there are so many different complexities and one-off things that specific clients have.  But I think you have to look as a firm, as an RIA, and have a very specific view on the investment world on portfolio construction so that there’s at least straight line themes across all of the clients in your business so that your conversation with client A shouldn’t be all that different than client B.

There may be concentrated positions that you have to focus on or different limitations around how you construct the portfolio.  But over, automatically, you know, your conversations should be pretty similar.

And what a lot of that is driven by for the most impressive firms from an investment perspective that we see is they use an investment committee approach to really thread that needle.

So whether it’d be on a monthly or quarterly basis, a subset of the firm gets together around the table.  They meet with maybe managers that they do a lot of business with to get their insights or portfolio performance notes.

They talk as a team around most recent economic data — “What does that mean for our view on the world?  We may vote on different portfolio changes or updates that we want to make to our positioning” — and it just creates a flow as an organization so that everyone is on the same page.  And you, as a firm, have a view on things like markets, the economy and what you’re doing for your clients.

It’s just a really important piece of the puzzle, I think, about, you know, running a well-oiled machine and best serving your clients as it relates to the investment world.

JOHN: Terrific, Nick.  As we kind of wrap it up here, what else would you add?  Obviously, we’re dealing with some challenging market environments.  What are some of the things recently that you’re talking to advisors about how they’re handling sort of the day-to-day choppy environment that we’re in?

NICK: Yeah.  I think that advisors who are on this side — on the independent side — even more recent moves, are looking at this market environment and realizing this is a little bit more challenged and foreseeing more challenged, at least moderate term future in terms of making money and generating returns for your clients.  We had a very accommodative policy environment for the past few years.

And I think folks are looking around and wondering what different things they can do in client portfolios whether it’d be to hedge against further equity risk, to maybe take on different forms of credit risk or add duration of portfolios in a new interest rate environment and being able to look around and do that in a truly open architecture environment and thinking about alternatives.  Maybe it’s structured notes, given volatility, and wanting to take advantage of that.

Doing it as a true client of the street is a much different experience as an advisor and as a fiduciary than doing it with a more finite menu that you may have at a larger institution.

So I think the general vibe, John, to maybe put a bow on it, is excitement around the capabilities in what we foresee as a more challenging investment environment moving forward.

JOHN: Terrific insights, Nick.  And I think that’s all the time we have for now.  But once again, I appreciate you spending the time with us.  And that’s the end of this session.

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