Why You Need CFO Services in Your RIA • Financially Simple


As a financial advisor, you’re well aware of the high stress and long hours that come with running an independent RIA firm. Each of these pain points can make it difficult to grow your business and focus on serving your clients. Chances are, you’re spending a significant amount of time monitoring your firm’s financials while juggling multiple roles. To free yourself from these shackles that your firm has placed on you, you must take steps toward decentralization. In today’s entry, I’m going to look at why employing a dedicated CFO (full-time or fractional) in your firm can help alleviate some of your stress AND help invigorate positive growth.

Follow Along With The Financially Simple Podcast!

This week on The Financially Simple Podcast:

  • (1:35) RIAs Who Use a Dedicated CFO

  • (4:25) Difficult to Raise Fees

  • (5:26) What does a CFO bring to the table?

  • (8:50) The Most Important Thing for Me? Analyzing the Key Metrics

  • (10:26) If You Want to Use a CFO, Where Do You Look?

  • (12:18) External or Fractional CFO

  • (14:56) The Pros and Cons of Hiring an Outside CFO vs Hiring an Internal CFO

  • (16:53) Qualities and Designations to Look For

  • (21:44) Why Do You Need a CFO?

  • (24:09) “Complete Objectivity is Not an Option”

  • (25:13) A Dedicated CFO Decentralizes You

  • (26:05) An Unbelievable Peace

What a Dedicated CFO Brings to the Table

More than just an accountant or bookkeeper, the Chief Financial Officer (CFO) is accountable for the administrative, financial, and risk management operations of your firm. They develop financial and operational strategies and associated metrics, providing ongoing development and monitoring of control systems designed to preserve firm assets and report accurate financial results to firm principals and the executive board. You see, a dedicated CFO has the ability to dig into the granular details of your firm’s finances in ways that you just don’t have time to do. They decentralize us.

Because of that decentralization, a dedicated CFO enables you to handle the client-facing tasks and work on your practice without getting in the weeds. The CFO also provides much-needed objectivity. I remember a few years ago when I was looking at the average account size per household in my business. I was appalled at what I saw. However, I began to try to rationalize it. My CFO on the other hand, looked at the data and immediately held me accountable. They saw the problem and didn’t allow me to rationalize it. We had to improve.

You see, when you’re focused on growth, and not dealing with the day to day crap that we all deal with, now we’re able to take a step back and make decisions that, ultimately, we know we need to make that we just don’t want to.

The Most Important Benefit (In My Opinion) of Having a CFO

In addition to decentralization, objectivity, and accountability—all of which are very important benefits—there’s one set of benefits that I really found extraordinary value in. You see, having a dedicated CFO meant that I suddenly had access to advanced metrics to inform our financial KPIs. By the time I sold my practice, we were measuring around 45 different KPIs in the area of finance alone.

Friends, this was a game changer. You see, with these KPIs, it was like having a scorecard or a stat line for a quarterback. I could quickly examine the KPIs and determine exactly how we were performing. But it didn’t happen overnight. We started with the major ones such as cost of capital, ROI, hurdle rate for each decision I was making as the firm’s owner. Having this information allowed me to see the health of my company’s finances in real time and make micro adjustments to drive us toward our goals.

Look, most of us (as business owners) have a familiarity bias when it comes to our practices. We’re so close and so emotionally invested in our firms that oftentimes, we can’t see the forest for the trees. A dedicated CFO can help you gather the objective data and then, using that data, make informed decisions for the direction of your company’s finances without the emotional blinders.

Compensation and Education

According to the 2015 RIA Benchmarking Study by Charles Schwab (the last to offer information on the average compensation of CFOs in the RIA space), CFOs working in RIA firms received total cash compensations valued between $127K and $295K. However, the 2021 RIA Benchmarking Study revealed that 49% of CFOs in the RIA space are also equity owners with a median equity position of 5%.

Experience is another factor that sets CFOs apart. According to the same 2015 RIA Benchmarking Study, 58 percent of CFOs at RIA firms have at least 20 years of experience in their role, while 34% have 10-20 years under their belt. Education is also important, with 72% of CFOs across all industries holding a Bachelor’s degree and 20% holding a Master’s. It’s no surprise that 87% of these degrees were focused on the disciplines of accounting, business, finance, and economics.

Beyond these standard academic pursuits, many CFOs seem to understand the value of continuous education. This is evident in the specialized designations held by many CFOs. the 2015 Benchmarking Study provided a breakdown of the designations and what percentage of CFOs in the RIA space hold them.

  • The Chartered Financial Analyst (CFA) designation was held by 9 percent of CFOs at the time of the study.
  • 28% of CFOs held the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation.
  • The Certified Public Accountant (CPA) designation seemed to be the most popular, with 44% of CFOs holding the credential.

Why You Need a Dedicated CFO

As I said before, we as independent RIA owners are prone to proximity blindness. We’re so close to the situation that we’re often unable to perceive certain things within the firm. Not long ago, my family took a trip to see the Sequoia National Park in California. My daughter wanted to see these enormous and beautiful Redwoods for her senior trip. When we arrived, we were so immediately taken aback by this lone towering Redwood that we paid no attention to the hundreds just like it. This same thing happens to us when we’re looking at our firms and it can cripple your ability to grow.

A dedicated CFO can provide you with a much-needed objective perspective of your firm. As Elizabeth Thornton says, “Complete objectivity is not an option. We are all subjective about the way we respond to ‘what is,’ whether it’s the people we encounter, the circumstances in our lives, or ourselves. What we can do is reduce our subjectivity – what I call ‘I see, therefore it is.’” That’s one of the great benefits of having a dedicated CFO… they enable you to reduce your subjectivity.

In addition to providing objectivity, a dedicated CFO can serve as an advisor, helping you to make informed business decisions and grow your firm. By appointing a dedicated CFO, you are taking a step toward decentralization. When you’re the one pulling all the levers in your firm, it opens you up to huge amounts of company-specific risk. Decentralizing works to grow the value of a firm.

Wrapping Up…

In conclusion, a dedicated CFO can provide you with the financial expertise, objectivity, and accountability you need to grow your firm. With the high stress, stagnant growth, and long hours that come with running your own firm, a dedicated CFO can be a valuable asset. Friends, by taking the time to appoint a CFO, you are taking a step toward decentralization and growing the value of your firm. This move offers you freedom to move from working in your firm to working on it, and spend more time doing what you love… helping clients!

Look, I know life is hard. Running an independent RIA is stressful. But life is good and growing your firm doesn’t have to be frustrating. With a dedicated CFO, you can worry less about the financial direction and strategy of your firm, making it at least financially simple. Hey, let’s go out and make it a great day!

Are you overwhelmed with middle and back office tasks in your RIA firm? Does it seem like you just never have enough time in the day? Reach out to our team to learn about ways we could help.

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