The Scale vs Service Problem
(I’m Mike Gordon, independent recruiter and transition consultant. I help match successful advisor-owners with better RIAs, BDs, and OSJs. You work with me when you want an experienced advocate to guide you through firm research, vetting, and negotiations. I’m the Advisor’s Advisor.)
A family-run RIA principal said something to me recently that I can’t unhear. “Private equity is doing to the RIA space what the wirehouses did in the nineties: standardizing everything, tightening everything, and calling it progress.”
Dang. He is right. And it is not just PE-backed firms. This is happening any place scale is becoming the objective. It’s happening in real time with real consequences.
When a firm is small and hungry, the agreements are flexible, the leadership is accessible, and the advisor feels like a partner. They market it as their core value prop. When the same firm hits a certain size, the calculus changes. The agreements get tighter. The fee leverage goes up. You haven’t seen your key contacts in leadership in a while, have you?
The covenants, the fee increases, the more restrictive exit terms… I think we are deep enough into the cycle to realize that these are not bugs getting worked out. They are the features of a certain kind of scale.
Accidental Leverage Problems
I worked with an advisor last year who had done everything right the first time. Researched his options, vetted the platform, liked the leadership. Signed a nine-year note and started building.
Four years in, the firm had been partially acquired, with new leadership, a new fee structure, and, critically, two agreement updates he had signed without reading carefully.
When he came to me, I would describe him as “sick and tired of being sick and tired.” No major blowups or conflict, but he was just done. The platform had not done anything illegal. The changes were within what the contract allowed. That was exactly the problem… He had signed a contract that allowed for more than he realized.
Oh, and remember that nine-year note?
What to Look For Before You Sign
The mistake I see most often is evaluating a platform on where it is today instead of where it is going. The tells are there if you know where to look:
Are the agreements for new advisors materially different from the ones existing advisors signed three years ago?
Is the firm growing fast on the recruiting side but losing advisors on the back end?
Has private equity taken a stake, even a minority one?
Is leadership rushing to pack on assets inorganically?
When existing advisors were presented with updated contract terms, what happened to those who pushed back?
These are questions you can only answer if you have been paying close enough attention to know what the answers looked like six months ago. That is not information that lives on a website.
The Goal Is to Make This Your Last Move
Every advisor I work with who is on their second move in 10 years will tell you the same thing: the second move was avoidable. They saw the signals. They just did not know how to read them, or they did not want to believe what they were seeing.
Evaluating a platform based on what it delivers today is not enough. The question is whether the incentive structure is designed to sustain delivery as the firm grows. Some platforms pass that test. Many do not. Knowing the difference is what my work is.
If you want to evaluate your current platform against where it is heading, I have helped hundreds of advisors work through exactly this question. A conversation is discrete, complimentary, and easy to schedule. Click here to schedule a time with me.
— Michael Gordon
themichaelgordon.com