What is making more advisors interested in breaking away to pursue independence? Some of the top reasons that advisors choose to start their own firms include a higher earning potential, more freedom to make decisions for their clients, business autonomy, and professional legacy. However, not all paths to independence will look the same. This article looks at the five main paths to forming an independent RIA and how to ensure your transition goes as smoothly as possible.
A registered investment advisor (RIA) is a firm that has followed the registration process to become certified by the Securities and Exchange Commission or state securities regulatory authority to provide investment advice. RIAs can offer advice on topics like retirement planning, estate management, wealth building, investing, insurance, and more.
Each RIA is required to act based on a fiduciary duty to make decisions in their clients’ best interests, acting on a code of ethics. Rather than take commissions for sales, RIAs generally follow a fee-based structure.
Forming an independent RIA means becoming a business owner. As you can imagine, there is a lot that comes with starting a firm, including many detailed decisions and complex responsibilities. However, the value and freedom of running your own practice can also be very rewarding.
RIAs offer financial advisors much more autonomy and generally higher payouts than a broker-dealer. With those perks come added responsibilities, like managing back-end tools, determining fee structures, marketing to prospects, and remaining compliant with rules and regulations.
Broker-dealers provide access to a wide range of support, including technologies, internal policies, custodial support, and infrastructure, which RIAs are responsible for.
Also, while RIAs often have greater flexibility regarding the products they can use, they are held to a higher fiduciary standard than broker-dealers when it comes to providing client advice. The RIA vs Broker-Dealer question is often a very personal one for financial professionals.
RIAs provide a wide array of services and products to investors across the wealth spectrum, acting as the lead designer of a client’s overall financial management strategy. This can include ongoing assessment of a client’s financial objectives, as well as other life goals. Based on the knowledge gathered in client meetings—which should be held annually at a minimum—along with market and economic analysis, RIAs may alter their investment recommendations/advice, re-allocate portfolios and/or recommend different products and services.
RIAs often work with other professionals, such as a client’s CPA or attorney, to create estate plans and charitable giving strategies as well. RIAs offer important financial guidance services that range from education funding to retirement planning, and from income generation to asset protection. Importantly, RIAs are required to act in their clients’ best interest at all times.
There are several reasons you may choose to move into an independent financial advisor role; people tend to have different motivations that drive their ultimate decision to make the switch. In a recent Cerulli report, nine out of ten breakaway financial advisors cited the top three reasons for their move to independence as:
Other reasons mentioned by advisors in the survey include the ability to create your own business culture, greater control over investment decisions and products offered to clients, and lower minimum production requirements.
These and other benefits continue to drive growth for new RIAs in the marketplace. By 2025, Cerulli projects that approximately 30% of industry assets will be managed by practitioners in the independent and hybrid RIA channels.
To learn more, you can read our blog on the whys and hows of moving to the RIA model or this blog on why now might be a good time to break away toward independence.
Forming your own RIA firm isn’t a one-size-fits-all journey—advisors have different goals, different strengths, and different challenges to face. Even your client base could impact how you choose to transition. If you make the move to independence, there are different options available to help you get where you want to be. Each of these five paths has its own benefits and drawbacks.
Breaking away to form your own practice offers the most independence, autonomy, income potential, and control. You can decide if you want to branch out and offer wealth management or become a certified financial planner (CFP) to attract a larger client base.
However, complete independence also has the longest runway, entails greater responsibility, and requires the largest initial investment.
Independent RIAs come with all of the perks—and headaches—of being an entrepreneur. Selecting vendors, staying up-to-date on technology, remaining compliant, managing human resources, and overseeing facilities are just a few areas the owner of an RIA must consider. Outsourcing some of these functions is an efficient way to stay on top of these tasks without losing your independence or autonomy. Learn more about the support AssetMark offers independent RIAs.
In recent years, the RIA market has seen growth of both private equity investors and RIA aggregators looking to invest in RIA firms. Partnering with such investors can mean lucrative financial support for advisors while allowing them to maintain control over their own practices.
Some partners will also provide operational support. Additionally, there’s an opportunity for advisors to monetize their portion of the business during the transaction.
By joining the corporate RIA of an independent broker-dealer, advisors can maintain a degree of autonomy while leveraging an existing infrastructure and handing off the compliance burden to the corporate RIA. This arrangement makes it possible for an advisor to maintain some aspects of control without taking on complete business ownership.
While there is no ownership of the corporate RIA, there is a degree of independence and fewer entrepreneurial responsibilities to worry about on your end.
However, this model may come with certain policies, tech requirements, or structures that the advisor may find frustrating or cumbersome. Advisors also may feel there is a limit to how much they can earn with this model. It’s important to only join a corporate RIA broker-dealer if you enjoy the structure that is in place.
This model offers a combination pulled from both worlds. By working within a dually registered hybrid model, you can offer your advisory services as an RIA while maintaining your commission-based business via an affiliation with an independent broker-dealer. While some of your income is captured by the broker-dealer, you may have the option to leverage the firm’s advisory platform.
As a hybrid RIA, you may run into situations where your commission-based earnings can cause potential conflicts of interest. With the hybrid model, you will have the benefit of using the broker-dealer’s infrastructure where it suits your business, so some use this to support their transition towards independence.
There are many RIA firms that are looking for experienced advisors to join their team. Joining an existing firm can be a great way to get started in the RIA industry, because you will have the support of experienced independent advisors and you will have access to a wide range of resources.
This option also makes sense, if you want to start your own firm in the future, but you want to gain some experience first. Or, if you’re an experienced advisor looking for a change–perhaps for a higher payout, the brand of the firm, etc.
Transitioning to a new business model while still serving your existing clients is a challenge, and you can’t afford to pay more attention to one than the other. However, there are steps you can take to ease the process and position yourself for the best outcome.
Your RIA is a startup, so you need a business plan in place. Your strategy will act as both a blueprint and roadmap for how to create and run your new firm. How will you increase assets under management (AUM), attract new prospects, or invoice your clients? Who will manage your books, oversee payroll, and stay on top of business operations? What strategy do you have in place to manage cash flow and pay your bills on time?
Don’t skip out on this step. Your business plan will help key stakeholders see your vision and keep you on the right track to achieve your goals.
Best practice: work with specialists to guide you through the process and provide you with the comprehensive transition support you need.
This move impacts your clients too. Like it or not, your clients are transitioning along with your business and may have strong feelings about it.
Understand how the move affects your clients. Communicate with them early and often. Listen to their concerns and be highly responsive if they reach out or have questions.
Keeping clients informed prior to, during, and after the transition is key to avoiding confusion, anxiety, and irritation. Make sure your CRM is up-to-date and have a library of communications ready early in the process so you can streamline your interactions as much as possible. Provide regular updates on client assets and account changes throughout the transition.
Time is your most valuable asset, and it’s a limited one at that. You can get support by outsourcing the parts of your business that you don’t enjoy doing or don’t have experience in handling–like tax filing, regulatory management, selecting operational tools, tech support, and more. Outsourcing through reliable providers is one way to ensure your advisory firm delivers high-quality service and that you have enough time to do what you do best.
An experienced firm like AssetMark makes it possible to do more for your clients and keep up with a growing business. From investment advisory management strategies to marketing guidance and client retention support, AssetMark is a turnkey solution and not just a one-size-fits-all platform.
You don’t have to approach your transition—or your ongoing business needs—alone. We can help. Reach out to AssetMark professionals today to get a free consultation.