George Orwell's "Animal Farm" is a timeless classic, a satire that uses a farm and its rebellious animals to explore complex political dynamics and human nature.
What if we took the allegory of "Animal Farm" and applied it to the RIA business?
It provides intriguing insights into the intricacies and challenges of running and growing an RIA firm without turning it into an organization that feels like the type of firm most advisors fled seeing independence.
The Rebellion: The Rise of the RIA
In "Animal Farm," the animals revolt against their human farmer, seeking a better life and more control over their destiny.
Similarly, the RIA business model emerged as a rebellion against traditional brokerage firms.
Advisors sought independence, transparency, and the ability to put their clients' interests first.
Just as the animals envisioned a utopia, advisors saw the RIA model as a way to create a client-centric approach to financial advice.
The Seven Commandments: Core Principles of the RIA Model & Independence
After the rebellion, the animals establish the Seven Commandments to guide their new society.
In the RIA space, core principles like fiduciary duty, transparency, and open architecture serve as the guiding commandments.
These principles differentiate RIAs from traditional brokers, who often operate under a suitability standard, which is less stringent.
The Pigs: Leaders or Overlords?
In "Animal Farm," the pigs assume leadership roles, initially driven by the desire to create a better society for all.
However, as the story progresses, they become indistinguishable from the human oppressors they replaced.
In the RIA space, founders often start with noble intentions, aiming to build a firm that truly serves clients. Yet, as I have seen too many times, they lose sight of these principles in favor of profitability and scalability.
Boxer the Horse: The Dedicated Advisor
Boxer, the hard working horse in the story, represents the dedicated and loyal worker who tirelessly supports the farm who meets a tragic fate.
Boxer's defining characteristics are his incredible strength, dedication, and unwavering belief in the principles of Animalism and the leadership of Napoleon, the pig who becomes the farm's dictator. Boxer's personal maxims, "I will work harder" and "Napoleon is always right."
Boxer's fate is sealed when he sustains a severe injury while working on the windmill. He collapses and is no longer able to work. The pigs, who have become increasingly corrupt and self-serving, promise to send Boxer to a veterinarian for treatment.
However, instead of receiving medical care, Boxer is sold to a knacker, a business that slaughters animals for their hides and meat. The pigs use the money from selling Boxer to purchase whiskey for themselves.
In the RIA space, this could be likened to the dedicated advisor who works long hours, deeply cares about clients, and often puts the firm's success ahead of personal gain.
If the advisor has a Napoleon running the firm, they could be at risk of having their career sent to the slaughter.
This could be anything from being 'sold' to another firm, payout 'adjustments,' technology or custodian changes and the implementation of proprietary products.
The Betrayal: Ethical Dilemmas
One of the most poignant aspects of "Animal Farm" is the gradual erosion of ethics among the leaders.
In the RIA space, maintaining ethical standards is crucial.
Conflicts of interest, pressure to meet the financial targets of capital partners, and the temptation to cut corners can lead to ethical compromises.
The most common betrayals are the 'side deals' players in the RIA space cut with vendors for their benefit and not the clients.
Conclusion: Learning from Animal Farm
Avoid the Napoleon type leader. Look for leadership teams that are 'Learners' not 'Knowers' and you will be much happier. (Link)
Look for transparency in all incentives inside your organization.
Don't be a 'Boxer.' That is not why you went independent.
In the end, the success of an RIA firm, much like the fate of Animal Farm, hinges on the ability to balance ambition with ethical leadership, ensuring that the original vision of putting clients first remains at the heart of the business.
--> Credit to the leadership team at NewEdge Advisors for the Animal Farm allegory.
New Podcast: RIA Stories with Rob Sandrew of Integrated Partners is out!
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