NOTE: This is No. 2 of a 3-part series on key considerations, tips and best practices for successfully going independent as a financial advisor. 

Once you’ve decided to go independent, the next question is whether to set up your own RIA or join an existing firm. It’s worth making the effort to explore both options to ensure that you’re solving today’s needs without compromising your career goals in the coming decades.

While setting up an RIA can seem complex, the rewards over time can be significant. Help can be found from service providers and advisors who’ve already made the transition. The benefits of ownership are broad and include full control over the fees and investment tools offered to your clients, the ability to control cost exposure, and the freedom in steering a practice at the speed and course you set. We believe that you’ll need a minimum of $12.5 million in anticipated AUM to establish a self-sustaining RIA. This is just enough to benefit from economies of scale from cash-flow, expenses and infrastructure.
Joining an RIA means giving up some of that absolute control in exchange for the benefits of an established platform with economies of scale and broad infrastructure. Because every RIA is different, deciding which to join requires thorough research. If you have a forgivable note, or retention package, joining an RIA may be your only choice.

You should consider which makes you happier: assuming the responsibilities of a business owner or working in an advisory capacity. Keep in mind that with a book of business of a certain size, the two choices become almost identical. 

Apples to Apples

To make an informed decision, you’ll want to put each of your options in apples-to- apples terms, measured in both dollars and effort. What’s it going to take to start? What’s my ongoing exposure? And what rewards do I realize? This is the only way to ensure your long-term satisfaction.

Starting your own RIA can seem relatively inexpensive, judging by the costs for registration and the state or SEC fees. This doesn’t reflect the costs to brand, market, build a website, establish a custodian, and software fees that will require up-front capital. A fully functioning firm is much more than a registered investment advisor. RIAs commonly incur ongoing expenses for trading, custody duties, third-party asset management, software and compliance services. To accurately conduct an analysis, model your projected up-front investments against revenues and expenses. This can be an eye-opening exercise.

If you are considering joining an RIA, it’s critical to use the same approach to evaluate your offers. Model what your current book of business could generate in revenue and compensation at each RIA and determine your corresponding cost exposure. A high payout may not look so attractive once you measure it against the take-home compensation.

By weighing both starting a firm or joining one, measure the costs and benefits side by side. Doing so is a modest short-term investment of time that has a potentially significant long-term payoff.

To B/D or Not to B/D

As you evaluate your options for independence, you may be wondering if it’s best to B/D or not to B/D. The reality is that you can preserve most of your advisory capabilities as a registered representative or a hybrid advisor under the pure RIA model.

If you have a large block of trail-generating business, or you are committed to using VAs, VULs, or other B/D required investments, which generate commissions in lieu of fees, then you’ll want to find a B/D that will let you realize the greatest benefit.

Ideally you should identify a firm that won’t eat off your fixed-insurance or RIA business or impose a high annual GDC requirement that might derail your newfound fiduciary focus.

Part 1 of this series ran Feb. 11. Part 3 will run Feb. 22. 

Ron Briggs is CEO of Entry Point Advisor Network (EPAN). Jasnik Parmar is president. EPAN  provides comprehensive support services to independent advisors and agents across the financial services industry.

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