Starting an independent RIA firm as a financial advisor is a difficult undertaking — one that's rife with surprises for the founder.
While the
The lure of independence
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Advisors transition from wirehouses, banks or large traditional firms to start their own businesses so they can retain a larger share of their revenue and have increased flexibility, said Brad Wales, founder of
Financial Planning spoke with RIA founders about the surprises they encountered when going independent. Here's what they said.
1. An adjustment to autonomy
Advisors coming from a wirehouse or traditional firm often are pleased — but overwhelmed — with the autonomy they now have over their practice, Wales said. Advisors previously had to follow a firms' regulations and practices, but after going independent, those decisions all fall on the shoulders of the business owner.
"At first, they usually have to get over being used to asking someone's permission to do certain things, because that's how it's always been," Wales said. "Now they can act on their own."
2. An 'eye-opening' array of choices
For advisors who have been with a single firm or affiliation model for their entire careers, starting a business opens the door to a world of new options and opportunities — whether it's investment solutions, marketing or technology.
Wirehouses, for example, typically "gatekeep" available investment solutions, limiting what advisors can use for supervisory reasons, Wales said. In that situation, advisors may have 200 set-solution options for alternative investments, but once they're operating on their own, new business owners realize there are actually more than 1,000.
"Unless they proactively looked for it, their prior firm certainly wasn't going to go out of the way to point out things that they were not making available to advisors," Wales said. "That could be eye-opening."
3. A large fish in a small pond
Based on conversations with clients and his own career experience, Wales said becoming a business owner brings a unique, hard-to-describe feeling. But once true ownership is attained, there's no desire to return to a corporate environment.
Being your own boss can bring newfound respect from peers. One client who left a wirehouse to start an RIA recently attended a local event exclusively for business owners, Wales recounted, and the client was surprised by his reception.
"He had felt a different level of respect being at that event alongside business owners than he ever felt prior as an employee advisor working for someone else," Wales said.
The industry subset of advisors who start their own firms lean into innovation and improvement, said Matthew Liebman, founding partner and CEO at Philadelphia-based RIA Amplius Wealth Advisors. This creates a growing camaraderie between wealth advisors who are also CEOs and entrepreneurs.
"We all support each other," Liebman said. "It's a warm, inviting community where everybody's bouncing ideas off each other to try and raise their own game."
4. The operational whirlwind
Launching his own firm was more work than he could have ever imagined, said Andrew Schiff, CEO and partner of Chevy Chase, Maryland-based TritonPoint Wealth based in Chevy Chase. Schiff compared the process to having kids — expectations can be laid out ahead of time, but it's a whirlwind when you are thrown into it.
"You can't begin to fathom how much your life is going to change and how much work it is," Schiff said.
Aspects that make the transition to owner challenging include the tasks such as finding a new office and renovating it, registering the RIA with the SEC, setting up insurance and transitioning over clients' assets, Wales said.
Though launching an RIA is intense and demanding, it's crucial to remember it's only for a finite amount of time, Wales said.
"Once you're on the other side and dust settles and it's in the rearview mirror, you quickly forget about some of the long days, and you move on," Wales said.
5. Compliance, team-building take time
The biggest burden of launching his own RIA was compliance work, especially because of his firm's compliance-first mission, Schiff said. Whereas his previous firm, Goldman Sachs, had an entire department dedicated to it, the responsibility now falls on him and his partners.
Hiring and onboarding employees is a similarly drawn-out process for RIA firms, which lack the infrastructure of wirehouses, Schiff said.
On the other hand, owning your own P&L and budget allows independent advisors to look for the absolute best candidate for any position, allowing the firm to be as picky as they want, Liebman said.
"It's much more rigid," he said. "We have six people at Amplius that were there on day one, and we have six people that we've hired since with two more that are joining us later this year. There is a major advantage in making your own hire-fire decisions to benefit your clients."
6. Emotions can run high
Taking the initial step of becoming independent and constantly working to transition to his own firm was unexpectedly "terrifying," Schiff said.
"It was a very long four months of just working all the time," Schiff said. "Transitioning the clients, making sure it was as smooth as possible and explaining to them what was in it for them was a very tough process."
Uprooting a portion of their clients' financial lives when transitioning to an independent firm can feel equally "unsettling," Liebman said. Like Schiff, he found the transition highly emotional.
Reflecting on his firm's launch, Liebman said he overestimated the potential backlash or difficult conversations he would have to have with clients.
"When we were ready to launch, I had my whole script ready," Liebman said. "I had counterarguments in case there were client objections or in case the former firm was saying things that I disagreed with to the clients. But I would say maybe 80% of conversations with clients were like, 'Whatever, just send me the form and tell me where to sign.'"
Though he was glad he was prepared, Liebman would advise his former self to not overwhelm his clients with jargon or rationale about the transition.
"Just speak to them on the key things that are going to impact their life, and then, and then help them make it as smooth as possible," Liebman said.
