RIAs need to view ops as a central competency, not just a drag on costs. A slap-dash approach to operations is keeping investment advisories from making as much money as they could. On average an advisory practice is losing 8.3% of its total yearly revenue to inefficient operations - and that's not counting lost productivity. So says a new study, "Mission Possible: Finding the Optimal Operations Model for Your Advisory Practice," by Moss Adams, a Seattle-based consultancy.

"Developing and managing efficient operations is a big challenge for advisory firms, and it may become as important as other core investment-management competencies," says John Iachello, managing director of Pershing's Advisor Solutions group, which paid for the study. "Advisory firms need to view operations as central to their firms' revenue-generating ability and business success, not just as an expense item.

Four tiers

But that "cost-center" view of operations - broadly defined as an advisory's data integration, communications and workflow - runs deep, says Mark Tibergien, a principal of Moss Adams. He tells of a firm that tried to attract a prospective ops manager by promising to make him a advisor if he performed well. "They were saying, 'You do this scutwork for a while and we'll give you a real position somewhere down the line.' That doesn't paint a picture of a position that provides leadership opportunities."

Tibergien isn't urging all advisories to run out and hire chief information officers, however. Firms with more than $5 billion in assets under management should probably have a management-level staffer running operations. Those in the $3-billion-to-$5-billion range should be thinking about it. Firms with less than that in client assets, down to about $500 million, should have a staff member or two working full time on ops. Below that, most advisories are - and perhaps should be - in what Tibergien calls "do-it-yourself mode" - with help, that is, from software or an application service provider.

But Tibergien warns that technology alone isn't a cure-all for shoddy ops. "As long as I've been around technology has been seen as the key to the kingdom," he says. "But how well and how efficiently technology is used is a function of the people [advisories] hire to use it."

Jersey City, N.J.-based Pershing, which provides securities clearing, execution, and settlement services to more than 1,100 financial firms, is a subsidiary of the Bank of New York. Its Advisor Solutions group provides reporting, clearing, custody and practice-management services to registered investment advisors. -FWR

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