Financial advisors Yonhee Gordon of JMG Financial Group and Keith Beverly of Re-Envision Wealth will discuss the challenges and opportunities of the RIA referrals flowing to certain firms in the industry. With JMG a part of the Schwab Advisor Network and Beverly an outspoken critic of the two firms' policies, the panelists will engage with moderator Tobias Salinger in a substantive discussion of the issues involved with which firms get access to the leads and how they convert them to new business.
Transcription:
Tobias Salinger (00:13):
Hi, I am Tobias Salinger. I'm the Chief correspondent at Financial Planning. Our parent company is Arize. Welcome to the Leaders Forum, where we bring together innovators and senior executives to share their experiences and perspectives on the most pressing topics. The subject of our discussion today is RIA, referrals from Charles Schwab and Fidelity Investments. We've got a great pair of guests today. Yonhee Gordon is a principal and the Chief Operating Officer of Downers Grove, Illinois based JMG Financial Group. And Keith Beverly is the Chief Investment Officer for Washington DC and New York based re-Envisioned Wealth. Welcome to our panelists. Thank you so much for joining us. Both of you were participants in the cover story out today. That's part of FPS annual RIA Leaders study. The title of the story is Schwab Infidelity Referrals Give Certain RIAs Business Deal Others Out. You can find the full feature on our website@financialplanning.com. One quick programming note for the audience before we jump in. Please feel free to chime in with questions at any time. I'll be sure to pose some of them to our panel as we go. And the first question is for both of you, I'll ask Yani first this time. When was the first time you heard of the Fidelity and Schwab Referral Networks and how do they help RIAs?
Yonhee Gordon (01:50):
So thanks so much, Toby, for having us on the call. I'm very excited to have this conversation actually for our firm. So our firm started, was founded in 1984. I've been at the firm for over 37 years now. So I remember actually over 25 years ago when Schwab, we were one of Schwab's first advisor services clients on the institutional side. And I remember that's when they first started over 25 years ago. For us at the time, I don't think that we were quite ready. I know Schwab was also building up that program, so we did not participate for very long back at that time, long time ago. And then fast forward to 2018 is when we recently joined the platform. So for us, I've, we've been aware of it for many years. I think just like our industry, the platform has evolved over time to what it is today.
Tobias Salinger (02:58):
And Keith, what about you? When was the first time you heard of these programs and just how do you understand how they work?
Keith Beverly (03:07):
Well, firstly, Toby, thanks again for having us on the call. Looking forward to the conversation as well. And for me, it was actually in 2018 also. So I was listening to podcast with Joe Duran of United Capital, and he mentioned that they participated in the program and I think it was the hundredth episode of the Kit's podcast if anyone wants to go and track it down. And he had mentioned that they were, obviously, they were growing very strong growth at that firm. I think they were growing 2 billion a year. And he had mentioned that 600 to 700 million of that was from custody referrals, custodian referrals. And to me it sounded like a big number and just kind of piqued my interest as to how the platforms work, what the criteria were to join the platforms because it seemed like it was, although it wasn't the strongest driver of growth for them, it sounded like an important driver of growth for that particular firm. And that was 2018? Yes, about five years ago.
Tobias Salinger (04:10):
Yeah. Well, and for Yani, how does the Schwab Advisor Network referral program work at your firm at JMG Financial Group and how can other firms that are part of it be the most successful in converting these leads into clients?
Yonhee Gordon (04:28):
Well, one point that I'd like to make is that we've been very successful growing organically. So it's really not the main source of our business. And I think that's an important point to make, that it took us time to also have our firm develop itself and over time in terms of what we're going to provide to clients as far as our service and our value proposition. The advisor network has obviously been a nice addition for us. And I think that's kind of the takeaway from our experience is that it's not the main driver of growth for us. And also I think working with the financial consultants, that's also a learning process for us as well. And I think it's really developing those relationships with the financial consultants, really educating them in terms of what we do and the services. I mean, every firm is different in what they provide to their clients. And I think it's so important because really the fcs are the frontline with their clients, and so they have a lot of options internally as well. So I think it's important for us to develop that relationships with the fcs.
Tobias Salinger (05:50):
And for attendees who maybe aren't as familiar, and certainly the article goes into it more, but when the financial consultants find that clients have more specialized or complex needs, that's when they do identify potential RIA destinations for these clients. And that's where the leads come from. And as Keith was kind of alluding to, they've been a driver of growth for certain firms who are in the program, but others are not able to become members of these referral networks. Keith, how have you made your concerns about the referral programs known to Schwab infidelity and what has been their response?
Keith Beverly (06:44):
Yeah. Well, the problem issue that I have with the programs is that, at least from my perspective, there isn't much of an emphasis focused on including diverse owned firms particularly. Right? And part of that is because of the AUM hurdle. So a lot of the diverse firms that I'm in contact with, us included, are below. Sometimes it's a moving mark, but I think it's like two 50 or so in AUM M. So a lot of the firms that I come across are below that threshold. And to me, it begs the question as to how they can look to be more inclusive with the participating firms because it is a unbalanced view to have only exclusively firms that don't have that representation. So that's the main qualm that I proposed and I addressed to Fidelity and Schwab. And there were a few conversations, but nothing really came of those conversations in terms of tangible actions that were taken to address that concern.
Tobias Salinger (07:59):
From the best we are able to tell, there are about 150 or so RIAs across the country who might be part of one or both programs. There's a lot of overlap there and some of the biggest names in the industry, and then a lot of billion dollar firms. And as Keith said, $250 million is the current minimum AUM required for consideration for Schwab's programs. And the companies, they say that that is about making sure that there's infrastructure there for the clients who have these more specialized needs, then might be able to be met by the financial consultants at the Schwab and Fidelity branches around the country from their direct retail wealth arms for Yani. How would you kind of respond to those concerns where there are smaller RIAs, there are diverse owned RIAs who are saying we would like to be part of this program as well?
Yonhee Gordon (09:17):
Yeah, I mean, that's a loaded question. So many different aspects of that with regard to diversity. I mean, I think that's a totally different panel discussion. Toby maybe might want to have that for another discussion. We could talk about that for this whole session. I think the diversity part goes back to just our profession. I have been involved with the CFP Board of Standards and their awareness campaign for diversity. I'm also on Schwab's DEI advocacy board as well. I work with a lot of students and I think it just goes to ethnic groups and diverse groups getting into this profession. I mean, I'm Korean, I'm also female in those two groups, a very small number of CFPs. It hasn't moved in the past 10 to 15 years, which is very sad statistic. But I think that now with colleges over 150 colleges providing the CFP curriculum, it's starting to become a more known profession.
(10:32):
So I think that's another issue in terms of having more diverse advisors in our industry. And that just goes back to awareness of this profession for students. And really, if you think about it, you need to go back to high school and the parents being educated about this profession so that they can provide guidance to their children to look for these types of curriculum in these different universities. The other part is in terms of these referral programs, I mean, there's a balance I feel, when we were made aware of this program over 25 years ago, I don't know that we would've been really ready because there is a lot of time and effort that goes into working and supporting these programs internally. So I think that while I understand the concern of smaller RIAs, I think also you got to think about the balance in terms of capacity and at staffing a number of advisors who might be available.
(11:47):
Obviously it does depend on what area you're in, a geographically population, things like that, client demand. So I think that there is definitely a balance. And I think that while I understand the smaller firm's concern, it's also the ability to be able to handle those types of requests. I'm sure that just like all of us, we have to run a business. So it's more of Schwab infidelity, and the others also are running a business, and so they want to be able to make sure that firms can handle the referrals that they send to the RIAs as well.
Tobias Salinger (12:37):
Yeah. Well, and Keith, how would you respond, and I also just wanted to ask you just with the point that there are only so many referrals to go around and there are tens of thousands of RIAs out there. Just if you were in charge of these programs, how would you go about expanding access to 'em?
Keith Beverly (13:02):
Sure. So one thing I think is helpful to keep in mind is the scope of these programs. And I know that there's a lot of gray area around the dollar amounts and how much is being referred out with each custodian. But there was one article that I saw, it was a few years back, and it said that Schwab had referred out 14,000 relationships. And of those 7,000 resulted in actually converted clients. So 7,000 of those were converted. And if you assume somewhere a million and a half or somewhere around that as an average relationship, something like 10 billion probably that's being referred out during Schwab alone, if not more, but somewhere in that range. So you think about that number. So 10 billion in assets that are being distributed and referred out amongst a couple hundred investment advisory firms, a couple hundred RIAs. And to my knowledge, none of them are diverse owned firms.
(14:03):
So that 200 and those numbers, when you put it in perspective, it really dwarves some of the other efforts that Schwab and Fidelity are doing when it comes to DEI. So the contributions that they're making to H HBCUs, the Bethune Cookman and NCT, I'm a member of the board advisory board for their financial planning program there at NCT and Prairie View. So they give those institutions 500 KA year, which is great, but at the same time, there's 25 million of dollars in assets per day that you're sending out to firms that for the most part aren't owned by people of color. And we know that from my vantage point, one of the ways in which we really grow the profession and grow the number of advisors of color in the profession is by having larger firms owned by the advisors of color who can recruit those advisors.
(14:59):
And that's one of the primary motivating factors for us growing. To the question of what does it look like to staff? You're right, we are business owners and you hire staff, right? You could hire a few dedicated staff to work the Schwab channel, the Fidelity channel and staff, the staff, the firm, that way to address that increase in demand that you otherwise didn't have. And a lot of times, I mean, there are advisors that are at these firms that have relationships at particular branches that sometimes are looking to transition to the RIA a space. I think there are lots of ways in which you can address the capacity and the size issue. Now, one of the things that we've seen, I think that if I were in a seat and I was in a decision-making role at ES Schwab or Fidelity or managing these programs, I would turn to what's commonplace in the institutional world.
(15:59):
And in the institutional world, when you look at many of the diverse managers that have grown over the decades, I think of aerial investments and John Rogers think of Brown Capital in those firms, those firms exist because large institutions said, we're going to be intentional about how we're deploying our capital. And although we don't have much assets with diverse managers, we recognize that unless we are intentional about dedicating a portion of our portfolio to diverse managers, that they'll never exist. They'll never grow. So there are several programs, I think several models out there in the institutional world, endowments and foundations, universities where they have programs to be intentional about including diverse managers into their platforms and in their pipeline of managers ultimately allocating capital to them. So something along those lines is where I would probably land on formulating a program that's more inclusive and isn't exclusionary for all intents and purposes to firms owned by advisors of color.
Tobias Salinger (17:13):
And we have received a couple of questions from the audience that I just wanted to pose really quickly. We had one audience member ask about the revenue split between firms in the program and the custodians. And for Fidelity, it's 10 basis points to fidelity on fixed income assets that are referred to an RIA and 25 basis points on all other client assets at the Schwab Advisor network. It's a blended rate at 25 basis points on the first $2 million in client assets. Of course, another part of that is if those assets leave the custodian, there is going to be an exit fee that's paid by the RIA. So that is one aspect of the program. We had another audience member just ask, what's the secret of getting into Fidelity's referral program? I've searched and come up empty. I know neither of your firms are part of the Fidelity Wealth Advisor Solutions program, but Yani, would you have any tips about just getting into a referral program if your firm meets the qualifications?
Yonhee Gordon (18:39):
Yeah, I would suggest talking to your client relationship manager. I mean, every Fidelity Schwab and all the other custodians have relationship managers assigned to RIAs. So I would start there. That's starting the conversation, and at least it's expressing interest in the program, and maybe you can get some information that way.
Tobias Salinger (19:03):
And we had another question. What is Fidelity's minimum AUM to be in their referral network? And they have a higher one at $500 million for Fidelity Wealth Advisor Solutions. They make a lot of that information available on their website. They actually list out all of the firms that participate. Schwab doesn't do that, but every firm that is part of it discloses it in their form ADV, which is where you can find a lot of the information about these programs. I know there is a lot of curiosity among advisors about it because it's a source of potential business, but there could also be misconceptions. I could have misconceptions about it as a journalist, that is possible. So Yani, what are some of the maybe misconceptions that are out there about these programs and how they work?
Yonhee Gordon (20:06):
Well, I know that a lot of RIAs may feel that they're competing with us, but I think all of us know that everybody has a different business model. I mean, there's so many RIAs. I've been involved in this business for almost four decades. It's a long time. So seeing the evolution of our profession itself, seeing the evolution of how these custodians are also changing and pivoting really to the needs of the client, the one thing I think we would all agree is not every firm or not every client is the right fit for every firm. So I think that that's important to understand. And I think that what these programs offer are resources, and isn't that really what we want for all of the clients, all consumers out there? Because every firm is not looking to get every type of client. So even all of us have different parameters in terms of what is the ideal client?
(21:16):
What is our target market? And so I think those are the things that we have to keep in mind even as Schwab and Fidelity look at these firms to partner with. All the firms are different, and we're different from the other firms that are on the platform with us. And that's something that we wanted to make sure of before we even joined the platform too. And so I think that's important that you can't be the end all be all to everybody. And so I think the important thing to remember is that providing all these resources and what it'll change as time goes on, because the demographics of our clients are changing. Everybody's all around. So I think that we're going to have other RIAs popping up to serve a specific type of demographic of a client. And I think that's wonderful. And so I think that that's something just to keep in mind in terms of how you look at these referral programs too.
Keith Beverly (22:21):
Yeah, go ahead. I agree wholeheartedly. I think the problem that I see from as far as the platforms are concerned is that there are definitely clients out there who want to support and want to give consideration to diverse owned firms. And Schwab and Fidelity aren't providing a platform where they can do that, where they have to go and find and seek us out, as opposed to going into the local Schwab branch and saying, well, do you have any diverse owned managers that are part of your platform that we could have a conversation with and see if they might be a good fit? And I think that has to be addressed in some shape or form. At bare minimum, a Schwab, when you go to their website, they actually do disclose their EEO one data. So you know how many employees based on gender and race are at the firm within the hierarchy. So from the executive leadership team to administrative folks, I would think at bare minimum, that's something that they could demand from the participating firms that are on the platform.
Tobias Salinger (23:33):
Yeah. Well, and it's always important to continue looking at all of the different angles that are involved with just the way that the industry works. And I thought it was interesting that there were quite a few participants in the program who pointed out that A, this isn't the main way that my firm is growing, and that would be a problem if anyone were to expect that coming into the program. And the other is just the level of resources invested in time and staffing in order to collaborate with the financial consultants and work with these clients on an ongoing basis. And just it's there in the disclosures, just the costs. So they do pay a significant amount to be part of it. So there's a lot there. I don't want to paint with a broad brush. And it's important to examine all of the subtleties that go into every possible story that we cover at financial planning. And I think one other aspect is that a lot of people have pointed out some other potential sources of organic growth for RIAs. What are some of the other good ways to get leads and referrals that RIAs can think about? Yani, could you start with that one for us?
Yonhee Gordon (25:12):
Well, I mean, for us mean if you provide good client service, you're going to get referrals. And so I think that's been the way that our firm has grown for almost 40 years. So that's a big part of it. I know that depending upon where you are, a lot of firms I hear do a specific target events for a group of clients, and that could be education sessions, things like that. So that's part of them on the marketing side of things to clients. So those might be ways. I think overall the consumers, we have an issue with financial literacy, I think, in this country. So education I think is just really critical. So I think it's that mindset of just providing a service. And really if you approach it that way, as they say, business will come to you if you're passionate about what you do and providing that service. And sometimes it's asking the clients for referrals. We did a survey many years ago and asking our clients, Hey, would you recommend our firm? A lot of them said yes, but you never asked. So I think sometimes we have to remember that aspect as well.
Tobias Salinger (26:31):
And Keith, what about you? How would you advise fellow advisors to go about finding potential referrals, whether among their clients or outside?
Keith Beverly (26:43):
Yeah. For me, first things first would be just providing an exemplary experience for your clients. So that's going to be the key driver to growth to any firm and the referrals from existing clients, as Yoni just mentioned. I mean, we also are very active when it comes to financial education and community outreach. So for us, that's part of the ethos of the firm is that we want to make financial high level sophisticated financial planning, investment management services accessible to a larger swath of the population. So for us, that looks like just about any opportunity to speak in front of a group. We're going to take someone up on it because we want to have that engagement in our community and also social media. So we're starting to do a lot more with interacting on social media and getting content out there for the public to see.
Tobias Salinger (27:38):
Well, and I think it's a great note to end on with also a reminder to give Keith a follow, give Yanni a follow out there on LinkedIn in all the other social media platforms. It's a vibrant social media discussion in the wealth management world. Maybe a little bit underrated sometimes, but I enjoy being a part of it and I've really enjoyed being a part of this conversation. Everyone, please give another virtual round of applause to our guests, Jani Gordon of JMG Financial Group, and Keith Beverly of Re-Envision Wealth. If you haven't already, don't forget to check financial planning.com for the RIA Leaders feature and all of FPS Wealth Management News. If you want, go ahead and subscribe while you're there for financial planning. I'm Tobias Salinger. Thanks again to our panelists and everyone have a great afternoon.
Yonhee Gordon (28:36):
Thanks so much, Toby.
