Ask Brad: What is the Best “Independent” Path?
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 have participated in several industry panels over the years. A question I am often asked is, “What size practice do you need to start your own RIA?”
I always start my response by saying advisors should ignore anyone that gives them a quick or precise answer to that question.
You can start an RIA with $0 AUM, just as you can start one with $5 billion.
There’s a worthwhile conversation to be had about where it makes most sense to have your own RIA. But it is technically doable at all levels.
Anyone who gives you an immediate AUM figure likely has an agenda behind doing so.
Perhaps it’s a technology vendor whose pricing structure requires a higher AUM level than what you have. Thus, it’s in their interest to suggest you join an existing firm (that already uses their tech) instead.
Or it’s a compliance-consulting firm that is in the business of helping advisors register their own RIA. Thus, you joining an existing firm is a lost opportunity for them.
Or the person answering is in the profession of trying to steer advisors to joining existing firms versus also helping them consider starting their own.
These are generally good people whose motivations are not necessarily aligned with yours.
It is analogous to when someone immediately declares which “independent” path is best.
This is a complicated topic for several reasons.
First, our profession doesn’t agree on what “independence” refers to.
Is “independence” affiliating with a 1099 broker/dealer offering? Is “independence” your own RIA/ADV? Is “independence” joining an existing RIA as a 1099 IAR? Or joining a so-called corporate RIA?
It’s like the word “hybrid.” This terminology is used in different ways, making it important to consider who is expressing it.
Even if we were to reach agreement with how to define each flavor of independence, which approach is “best”?
Back to my panel response. Anyone who gives you an immediate answer, particularly without learning more about your practice first, likely has an agenda behind their response. If they are employed to sell a particular solution, there is nothing wrong with them being passionate about the pathway they’re aligned with. But that doesn’t by default mean it’s what’s best for you and your practice.
Each advisor/team is unique, with their own motivations, vision for their practice, and the way they service their clients.
Each flavor of independence has different economics, levels of flexibility, and responsibilities. The flavor “best” for one advisor/team will not necessarily be best for another advisor/team, even one with apparently similar attributes. The only judge of which option is “best” is the advisor/team themselves.
How can you protect yourself from making a premature decision about which path is best for you?
Understand how each path of independence works on a generic level before worrying about which specific solution provider (within that flavor) is best for you.
There is no golden goose. All models have pros and cons. If anyone tells you otherwise, they are disingenuous or ill-informed.
Take the time to understand how the independent broker/dealer model works. Look into how having your own RIA would look. Discover what joining an existing RIA platform is like. Learn the pros/cons of each of these “independent” pathways. Find out how the economics work, what flexibility you’ll have, and what responsibilities you’ll take on. Learn how each approach compares to the others.
I’ve written extensively about these topics in this column. I encourage you to peruse my past articles or consider reaching out for a one-on-one conversation.
Once fully informed about what “independence” entails, you can begin determining the “best” solution for you.
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.
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