Independence…Choices, Choices, Choices.

By Verne Marble, Director of Business Development

The taste of freedom and flexibility the world experienced as a result of working from home during the pandemic has many financial advisors wondering “what’s next” for them in their professional journeys. If you are an advisor considering going independent, you’re probably asking the question, “Which business structure is better, starting my own Registered Investment Advisor (RIA), “tucking-in” to an established RIA, or aligning with the corporate RIA of an independent broker-dealer (IBD)? Each of these are valid options and come with their own unique considerations. Let’s examine.

Aligning with the Corporate RIA of an IBD

This option is probably the most similar to many advisors’ current experience. In this framework, an advisor will transition to independent status, owning her own business, but will do so by leveraging the resources provided by the IBD. From a regulatory standpoint, she will be a Registered Representative of the IBD and also an Independent Advisor Representative of the IBD’s Corporate RIA. Opting for this model allows the advisor to off-load some regulatory risks, but also restricts her to the custodian, product set, and technology platform (to name a few) as approved by the IBD.

Starting an RIA

For many advisors, this option represents the purest form of independence. If an advisor chooses this pathway, she is taking the bold leap of establishing, and operating, a regulated entity (either by the state or the SEC). In establishing her business, she has more control of major decisions, such as: which custodian(s) to use, which technologies to adopt, and which products and services to tap into to best serve her clients. That’s the exciting stuff. However, she will also need to develop and manage essential business processes and infrastructure, such as the firm’s compliance program, the firm’s cybersecurity infrastructure, and the firm’s operations manual. That’s the not-so-exciting yet critically important stuff, and there are many pitfalls awaiting those that do not do it properly, or underestimate the amount of effort, cost, and coordination that may be necessary.

Affiliating with an Established RIA

In this “tuck-in” scenario, an advisor would affiliate as an Independent Advisor Representative of an established RIA, and may provide an advisor with the freedom and flexibility she desires without the direct risk, responsibility, and cost of running her own RIA. Many RIA firms allow advisors to operate under their own unique brand, to use the custodian of their choice, to build their tech stack as they see fit, and to serve clients in a fiduciary capacity by accessing a much more expansive investment landscape. The RIA will have an established compliance, operations, and service infrastructure, which enables the advisor to operate efficiently and with scale. There are even “hybrid” options if an advisor needs to operate in both a brokerage and fee-based environment. Lastly, added benefits of the tuck-in model can be the sense of “community” that is created and the growth and efficiency programs put in place by the RIA firm.

So, how do I decide which path to choose?

As with anything, be your own advocate and employ a thorough due diligence process before deciding to go at it on your own or aligning with a partner. Have conversations with a variety of firms across the financial advisory landscape, which also would include third-party recruiting/consulting firms. Ask the same questions multiple times and in different ways to ensure that you are getting consistent answers. And, don’t be afraid to admit that you don’t know what you don’t know. Organizations that are competing for your business should be positioning themselves as consultants and educators, not as salespeople. As one of the largest RIA firms in the country, Private Advisor Group has helped many advisors make the transition to independence on their terms and timeline, and we’d be happy to help you explore your options with us.

Let’s connect: | Verne on LinkedIn

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