Whether waking up one morning unable to shake the siren song of independence or building methodically toward an independent practice, for financial advisors, stepping into an independent RIA firm means navigating a sea of decisions. Tackling each choice piece by piece may shrink the seemingly insurmountable into manageable decisions. The following three considerations may help advisors on their way to making RIA dreams a reality.
Advisors striking out on their own enjoy a number of potential benefits. Building out a business allows for a greater degree of control around client relationships and designing the value proposition. This means making choices from selecting a technology stack to which products to offer. It also means creating something tangible in the form of the asset that is the fledgling business.
Beyond designing the vision for their RIA, advisors will need to make a number of key decisions. Primarily, they’ll need to determine what level of independence they want for their business. From pure independence to joining existing RIA firms, advisors will need to weigh the benefits and limitations of different RIA models.
Building a New RIA Firm
For advisors wanting to build from the ground up, the more traditional independent RIA business model may be the best fit. When creating a new RIA, all the choices around that allow the advisor to maintain complete control. Advisors will need to work out all the details, big and small. These selections can include — but certainly are not limited to — which tech stack to use, what kind of culture to curate, and what type of practice best suits their vision.
Building from the ground up independently allows for brand creation and custom tailoring every step of the way. It also allows for the advisor to retain control as the business grows and evolves. This in turn provides a high degree of adaptability for growth over time where other models may be more constrained.
While independence comes with a great deal of freedom, it also means a number of unique challenges. Choosing a technology stack can be cumbersome. Further, maintaining and upgrading that stack through the constant evolution of technology options can prove both time-consuming and costly. It also means advisors must be a jack-of-all-trades, from recruiting clients and employees to designing and implementing a successful marketing strategy.
Start-ups also often have high-cost thresholds and come with a greater degree of risk than stepping into an existing RIA business. Advisors will need to navigate more nuanced aspects such as compliance practices while simultaneously managing the big picture issues.
Bringing in Outside Help
Outsourcing different aspects of an RIA firm provides several potential benefits. This includes the ability to ease the transition to independence with readily available access to experienced professionals. These benefits may help advisors to get on their feet faster, allowing them to turn their attention primarily toward building a client base and brand.
For those advisors looking to outsource aspects of their business, a number of models exist. This could include signing on an outside company to run the day-to-day aspects of the business. In this type of model, an advisor owns and runs their business and retains control over client interfacing. However, experienced specialists step in to run the time-consuming daily tasks of the business and may assist on the back end.
Another variation of outsourcing might mean seeking support from a firm that provides a degree of back-end support, coaching, and assistance with transitioning from a wirehouse to an RIA. In this type of model, the advisor often maintains near-total independence. Yet other outsourcing models supply technology stacks, office space, and even employees as advisors build out their brand and establish their client base.
When outsourcing, advisors will need to consider how much another firm aligns with their own vision as well as how compensation is calculated and what expenses are based on. Some outsourcing models don’t allow for independent branding, while others give more freedoms. Outsourcing also means trading in a level of independence and control when it comes to the “how” of the processes outsourced.
Joining an Existing RIA Firm
For many advisors, joining an existing RIA may prove the best option. Stepping into a practice with already-established fundamentals without having to bear the burdens of getting a business off the ground provides several benefits. Existing RIAs already have offices, employees, and procedures established. They also have their own brand and culture, so advisors will need to ensure these align with their own vision.
Existing RIA firms also provide a wealth of support in the form of the other professionals working there. A team approach to researching, reporting, trading, and portfolio construction creates the potential for greater knowledge sharing and time management. Having a readily available, experienced team that’s able to help troubleshoot issues may also bring peace of mind to those transitioning to an RIA.
Another key benefit of joining an established RIA firm is the potential for advisors to really focus on their clients. Because the fundamentals are already in place, advisors can turn their attention to the client side of the business. Whether this means transitioning existing clients over or building out a client base, an already-established RIA allows for greater time allocations for clients.
As with all business models, the benefits of joining an existing RIA firm are balanced with some potential drawbacks. These include any possible integration challenges of stepping into an existing business as well as limited freedoms. Advisors may face limitations should they desire to expand or evolve their portion of the business over time. Some firms may offer better support than others for new additions. Advisors will also need to consider the size of the existing business and if their vision is a good fit for the existing model.
Deciding how to take the leap to independence may be the single most important decision an advisor makes. Advisors will need to weigh the costs, risks, and potential benefits when determining if full independence, outsourcing, or joining an existing RIA is best for them.
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