This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
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The time to transition your practice to the RIA model should not be the driving determinant of which pathway into the model you choose. The shorter the available timeline, the less optionality you have.
As I frequently touch on in this column, there are three main pathways into the RIA model.
1. Start your own RIA and individually piece together the needed solution providers (ex: custodian, compliance, tech, TAMP, E&O, etc.).
2. Start your own RIA and lean on the services of a bundled solution provider to build and manage the individual pieces for you.
3. Join an existing RIA platform.
The following framework illustrates how the time to make a transition impacts the solutions available to you.
0-30 days
While in theory doable, this is problematic. Considerable education and consideration of options and solution providers are necessary for transitioning your practice to the RIA model. These steps must occur before the additional important step of logistically planning for the move itself can even begin.
I spend more than 30 days on the education piece alone with most advisors and teams I work with. Truncating the education, selection of solution providers and logistical planning within a 30-day window significantly limits options.
If the situation warrants it, though, there are potential options. Starting your own RIA, either individually or via a bundled solution provider, is off the table. The registration of the RIA itself is a 45-to 90-day process, if not longer.
Joining an existing RIA platform is potentially viable. There are many reasons advisors join an existing RIA platform versus starting their own RIA. Advisors make that decision not because of the expediency of doing so but because of the attractiveness of platform value propositions.
For the “urgent” advisor with a sub-30-day timeline, joining an existing firm will be your only option. These firms provide a ready-made solution and have teams that can help expedite the transition process.
What will derail such a pathway is if the shortened timeline is due to negative circumstances. RIA platforms set a high bar for with whom they work. If you are being forced out of your current firm, have an ongoing regulatory or compliance issue, or other pending CRD “ding,” it may be difficult to find a platform that will work with you.
This zero to 30-day window is thus hypothetical as advisors/teams not under negative circumstances do not choose such an abbreviated timeline. For demonstrative purposes, joining an existing RIA platform is the only option for a zero-to 30-day window.
1-3 months
While still abbreviated, this timeline is more realistic.
Starting your own RIA is still likely off the table. Registering an RIA in under three months is difficult and assumes you begin the registration process on day one.
Joining an existing RIA platform is viable, though it will rely on an expeditated timeline. You will need to identify which providers have a value proposition that aligns with the needs of your practice, perform due diligence, and work with your chosen platform on logistical planning for the transition itself.
Doable, but not for the slow-paced.
3-9 months
This is the ideal timeframe.
It is long enough to start your own RIA (either individually or supported by a bundled provider) or join an existing RIA platform. But it is short enough to not suffer from transition fatigue (see below).
Three to nine months allows time to fully understand the RIA model and how it would look for your unique practice. Time to identify, perform thorough due diligence, and compare solution providers. Time to logistically plan for and complete the preparation steps of a transition.
With rare exceptions, most transition scenarios can and should be guided by a 3- to 9-month timeframe. If you are serious about exploring and potentially transitioning your practice to the RIA model, 3 to 9 months is ideal.
9-18 months
This timeframe builds on the advantages of 3-9 months but comes at the risk of transition fatigue setting in. Such fatigue comes in many flavors, such as:
Frustrations with your current firm will become increasingly aggravating after you’ve mentally decided you’ll be leaving.
You will start to take your foot off the business development gas pedal, as you’ll likely seek to avoid onboarding new clients, knowing you’ll need to ask them to move their accounts in short order.
The way to decrease such challenges is to avoid prolonging the planning and transitioning process any longer than necessary.
18+ months
Under this timeframe, your initial exploration should be limited to education on how the RIA model works and why you might want to transition your practice to it. Talking to specific solution providers at this point is premature. A lot can change in 18+ months, both for the industry and specific providers. It is never too early to begin the education process, though. Particularly for advisors that have spent their entire career under a single affiliation model, it is wise to invest time in understanding the RIA model and how it differs from what you have.
When an advisor tells me their timeframe is more than nine months, I challenge them as to why. While such a timeline is sometimes prudent, it is often inertia arbitrarily at play.
Ask any advisor or team that has transitioned their practice to the RIA model what one piece of advice they would give, and they’ll tell you they wish they had done it sooner.
Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development, to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.
This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
