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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While expressed in different ways, the motivations brokers have for transitioning their practices to the independent RIA model are better economics or more flexibility with their practice.
Better economics entails variables such as more current-day income, less taxation of income, greater enterprise value, etc.
More flexibility includes the ability to offer a wider array of investment solutions for clients, use more or better technology to run a more efficient practice, expand the service offering for clients, implement new business development strategies, etc.
While economics is an important consideration, and the RIA model comes with considerable advantages, increased flexibility is usually what gets advisors excited about the transition. That entails:
- Explaining to clients the new services, tools, and technology the firm will introduce.
- Explaining to team members the bureaucratic obstacles to making the practice run smoother will be torn down.
- Implementing business development strategies you’ve long seen your competitors use but your current firm never allowed.
While it is exciting, it also can become its own obstacle.
Vastly oversimplified, the three most important parts of the final transition process are 1) opening accounts; 2) transferring (ACATing) accounts; and 3) reestablishing billing.
Significant planning will have gone into the transition leading to the point you leave your current firm. I am not suggesting those steps are unimportant. But once the transition begins, the above three steps should be the focus for all members of your team. Without successfully performing those three steps, everything else is moot.
For these reasons, I often tell advisors about the virtues of a two-step approach to a transition. I call them version 1.0 (V1) of the practice and version 2.0 (V2).
V1 includes the must-have pieces: a custodial arrangement, core technology, a website, etc. These are foundational pieces central to supporting the new practice.
What’s not critical, at least on day one, are things like implementing new technology tools your clients have never seen before and don’t even yet know exist, the new podcast you plan to launch, or a website with 50+ articles optimized for search engine optimization (SEO).
These latter pieces are often motivations for transitioning to the RIA model. But consider what foundational pieces need to be in place on day 1 (V1 of the practice) and what you can implement after the transition is complete and you’ve settled into your new processes (V2 of the practice).
Start with V1, and a plan to eventually move to V2.
While practical advice, this approach requires a level of patience. All the things you’ve been waiting for your entire career to start, and here I am suggesting you wait even longer.
I am never one to sugarcoat a transition to the RIA model (or any model). It is a lot of work and will last months. You will be stressed, work long days, and parts of it won’t be fun. But ask any advisor/team that went through it and who is now comfortably on the other side, and they will tell you it is all worthwhile.
By separating the rollout of the new practice into V1 and V2, you can better focus on making V1 successful. The new opportunities of V2 are important (and exciting!), but they can wait until the critical changes have been made.
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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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.
