Joining an Independent RIA: Take Three Steps in the Right Direction

Joining an Independent RIA: Take Three Steps in the Right Direction

Join an independent RIA

Published September 6, 2017

With summer winding down and the crisp fall weather just around the corner, here are three actions you can take now if you have been considering changing broker-dealers. Knowing your worth and market value, understanding your contractual obligations and recognizing the importance of the RIA model will help give you direction and confidence as you look to make a change.

Know Your Worth and How the Market Values You

If you’re looking to change to another broker-dealer, you will quickly come to the realization that upfront recruiting packages (aka transition assistance packages) are on a one-way ticket south. With the DOL upending the traditional back-end loaded packages that advisors have come to expect, there’s a new rule of thumb: less is more. I wrote about this in a recent blog post (Less Is More in Broker-Dealer Transitions: Avoid the Sugar Rush, June 21, 2017). Anything over 15% upfront is a red flag. Keep your focus on long-term economics based on cash flow or net payout. Beware of admin fees tied to corporate RIAs and nickel-and-dime fees that add up quickly. Be especially cautious of the lure of “free trading” associated with “broker as PM” platforms, as anything “free” will surely impact your long-term economics.

Understand Your Contractual Obligations in Transition

Another urgent item to look at sooner rather than later is your current employment agreement and your firm’s privacy policy. Do you have a non-solicitation agreement? These agreements may severely complicate your life if you proceed with a transition not knowing the risks of how they apply. Are you allowed to solicit your clients beforehand? Do you have access to their data? If you’re coming from a wirehouse, you can be certain to be affected by this. However, the most draconian transition is for advisors looking to leave a bank. Just be aware of your situation so that you and your attorney can navigate the risks. You can be sued or face temporary restraining orders (TROs) and injunctions if you do not handle a transition properly.

Recognize That the Future Is All About the RIA Model

It only takes a minimal amount of research to see that the RIA model has all the momentum in our industry. I’m not talking about the “Corporate RIA model” here, which may be a vast improvement from your current situation but falls just short of maximizing the value unleashed by independence. Starting your own RIA is a noble option if you have more than $500mm in assets, but the cost of compliance is on the rise (no surprise) and typical outsourcing solutions don’t solve for a key operational aspect of managing compliance: implementation. You can have the most elegant compliance manual with customized procedures specific to your firm, but the rubber meets the road with implementation. Just like practice management consulting, compliance consulting mostly sounds good and has little value unless it’s executed on. Of course, the costs of implementation are measured by time, resources and distraction. Joining an existing RIA where you are truly independent not only solves for these costs, but allows you to reinvest them into growth-related, client-facing business activities.

In closing, there is always risk with change. It’s just a matter of knowing the rules of the game and planning out the steps to follow. Of course, having the right long-term business partners with your interest at heart can’t hurt!