The movement of financial advisors seeking greater independence by forming or joining an independent registered investment adviser (“RIA”) firm continues to accelerate. As the industry continues to shift more towards a fiduciary model, it’s possible this trend may continue to accelerate. Now more than ever, advisors are contemplating ways in which they can transition from an independent broker dealer or wirehouse to establish or join a fee-only RIA firm. However, independence can carry a different meaning for different advisors and careful due diligence should be performed when evaluating all options. While potentially higher earning opportunity may be a motivation to go independent, there are numerous other considerations the advisor must weigh when making the decision about how much autonomy they truly desire. For some advisors, the task of compiling the infrastructure and managing their own business may be overly daunting. For the more entrepreneurial advisors, the thought of not controlling their own destiny is a non-starter. Independence comes in many forms – two of which we’ll focus on in this latest blog post: joining an existing RIA or establishing a new RIA.
Option 1: Joining an Existing RIA Firm (“Tucking In”)
Potential Benefits:
- Short-term solution for entering the independent RIA space
- Increased payout (when compared to the wirehouse or independent broker dealer channels)
- Rely on establish infrastructure including technology and human resources support
- Can join relatively quickly, allowing for quicker exit from current firm
- Focus less on building firm, more on building client portfolio and growing assets
Do the Homework:
- Is the firm the best fit for the advisor’s clients?
- How much autonomy will the advisor truly have?
- How much is the advisor paying to utilize the firm’s infrastructure?
- Is the advisor a good fit for the firm’s culture and vice versa? Are Interests aligned?
- What does the advisor know about the firm’s platform and brand? Can the advisor play a role in strategic direction or branding?
- How do the economics look and how is the compensation structured?
- What is the firm’s growth plan?
- How easy would it be to leave the firm and go fully independent?
Option 2: Starting an Independent RIA Firm
Potential Benefits:
- Complete freedom and autonomy to make all client and business decisions
- Build own business plan, strategic direction, and brand
- Ability to mold the business to best fit the needs of clients
- Leverage multi-custodial relationships and choose from broader network of technology and other service providers
- Have direct control over firm growth – either through client acquisition or advisor acquisition
- Potential for increased earnings
Do the Homework:
- How much autonomy is the advisor truly comfortable with?
- What are the total costs to establish and operate the firm on an ongoing basis?
- Is the advisor aware of the initial and ongoing regulatory requirements?
- Is the advisor comfortable taking on administrative responsibilities such as payroll, office leasing, etc?
As RIA registration and compliance consultants, we encourage all advisors to carefully weigh their options when exploring the independent RIA channel. Taking the time upfront to do the appropriate due diligence is vital to an advisor’s long term success. True independence, in the form of establishing one’s own RIA firm may not be for everyone. Alternatively, gaining partial independence by joining an existing firm can quickly go awry if it’s not the right cultural fit for the advisor or advisor’s clients.