The biggest obstacles to building a billion-dollar RIA

Successful entrepreneurs share the unexpected setbacks they faced in developing their advisory firms.

The goal for most advisers is to increase the size of the firm, both in assets under management and the number of employees. But as the late rapper Notorious B.I.G. once said, “Mo money, mo problems.”

The Alliance for Registered Investment Advisors, a think tank of entrepreneurs behind some of the most successful RIAs, discussed the setbacks of building a billion-dollar firm at the TD Ameritrade National LINC conference Thursday.

(More: Billion-dollar RIAs’ lessons for advisers)

The panelists agreed that growth requires talented employees, but finding and hiring the right people is often one of the hardest challenges.

Matt Cooper, president and founding partner of Beacon Pointe Wealth Advisors, said when his firm was smaller there was a policy of only hiring people the company knew. As it grew — Beacon now manages $1.7 billion in assets, according to its most recent ADV filing — Mr. Cooper turned to tools like LinkedIn to find candidates and used diagnostic tests to make sure the person was a cultural fit. The firm also ditched strict rules dictating the roles, actions and outcomes of new hires. Now, Mr. Cooper said Beacon looks for the best talent and gives them room to operate and fail.

Culture was a topic that continually came up, with many of the advisers saying it’s crucial for building a successful firm. Brent Brodeski, CEO, principal and financial adviser at $5.3 billion Savant Capital Management, said in early days he was too concerned with hiring “résumé snobs.”

“These people were really smart, but they were jerks,” Mr. Brodeski said.

Needing credentialed professionals isn’t as necessary as some people think it is, he said. What’s more important is finding people who compliment the firm’s existing strengths.

“You can train the technical stuff but you can’t change the core person,” he said.

Ron Carson, the founder of Carson Group, said one mistake he made early on was not paying enough attention to how important culture is.

Other than people, Mr. Carson said a major challenge in growing his firm — now with 49 advisory partner firms and nearly $11 billion under advisement — was navigating changing technology needs.

(More: Carson Group platform gives investors financial planning choices)

Mr. Carson, Jack Petersen of $3.2 billion Summit Trail Advisors and John Burns of $1.8 billion Exencial Wealth Advisors agreed there is no “magic sauce” for deciding whether to buy, build or partner with technology providers. While Mr. Petersen decided to rely on outside help from Dynasty Financial Partners and custodians, Mr. Burns preferred to develop internally.

“We performed a gap analysis on the technology systems we had, and really tried to evaluate how well we were using each one,” Mr. Burns said.

He recommended advisers start by considering what technology clients want and need, then what employees will need, and finally ask what management needs to achieve the firm’s goals.

Mr. Carson thinks it’s important to have a technology strategy in place, but that it should remain flexible. He also stressed the importance of investing in technology that integrates, saying it’s something that helps him decide whether to build technology or use an existing partner.

“The most precious commodity you have is time,” Mr. Carson said. Carson Group’s technology is the result of five years of development and cost millions of dollars, he said.

But even if an RIA makes all the right moves and hires all the right people, the panelists agreed firms also must be willing to try new things — even if they fail. Firms won’t grow if they do the same thing as other advisers, so they must be continually experimenting.

As Mr. Brodeski put it, “Basically, work really hard and try a lot of stuff.”