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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I help advisors understand why and how to transition their practices to the RIA model.
That’s all I do. I don’t help advisors learn how to go from one wirehouse firm to another or one independent broker/dealer to another.
I am a specialist, not a generalist. My time and resources make me the expert on this one thing.
That makes me biased towards the RIA business model.
But I’ll be the first to say that the RIA model is not for everyone.
Part of my value proposition is to ensure an advisor’s motivations for considering the model align with what the model provides. Considering the volume of advisors moving to the RIA model, I have the luxury of being a straight shooter with those where it’s not a fit.
I have seen advisors or teams that are a good fit but never make the transition. Why is that?
While various minor reasons might be applicable, there are two broad explanations.
First, inertia.
Investing time to understand how the model works, identify and perform due diligence on solution providers, logistically plan for the transition, and ultimately make the transition itself is a lot of work. Anyone who tells you otherwise is disingenuous.
The path of least resistance is to take none of those steps.
Consider refinancing a mortgage to a lower interest rate. With the trajectory of rates lately, the analogy is not as timely, but still a relevant example.
No one enjoys the process of refinancing a mortgage. It takes time, and costs are involved; you might need to shop around for rates, paperwork gets misplaced, etc. There is nothing enjoyable about it. However, once the refinance is finished and you’re saving on interest expenses every month, I have never heard someone looking back who said they regretted doing it. It wasn’t fun, but it was worth it.
It is the same with exploring and transitioning to the RIA model.
Like a refinancing, if you have only one year left in your career, the time and effort of transitioning to the RIA model is not worth it. If you have a runway still ahead of you and the model makes sense for your practice, don’t let the short term overweigh the long term.
But advisors fall victim to the power of inertia. Doing nothing is always easier than doing something.
The other factor preventing some advisors from making the transition is a lack of understanding of how the model works and what it would look like for your practice. If you have spent the entirety of your career in a different affiliation model, your experience has not exposed you to the intricacies of the RIA model.
How well do you understand how it works? How does it compare to what you have now?
Whatever your beliefs are, consider the parties that have molded your perception. If you’re at a wirehouse, your branch manager and the firm’s entire executive team have the motivation to convince you the RIA model is inferior to what they provide for you. You’d have fewer resources. The technology is mediocre. The economics are not as good.
Strange how their narrative aligns with keeping you in your seat with their firm.
But Brad, aren’t you doing the same by espousing the virtues of the RIA model?
How I differ is I am not afraid of telling an advisor to look at the RIA model while also fully understanding what their current firm or affiliation model provides. Become equally educated on both and decide which is best.
When was the last time your branch manager or home office suggested you do the same? Not only will they not suggest it, but if they found out you’re learning more about the RIA model, they might terminate you. Rather peculiar for a firm providing you with a superior option.
Consider how communist countries guard their borders. Like all countries, they place soldiers on their borders. The difference is that soldiers of communist countries aim their guns inward to prevent people from leaving, not the other way around.
Take the time to understand how the RIA model works. There is nothing to lose by becoming educated and understanding how it would look for your practice. Only then can you determine if it is a better path.
There are legitimate reasons advisors do not transition to the RIA model. Falling victim to either inertia or a lack of understanding should never be among them.
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.
Read more articles by Brad Wales
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.
