The trends in our profession are clear, but is going independent the right move for you?.
The trend toward advisor independence is clear. According to Cerulli, the AUM of registered independent advisors has doubled in the past decade. Moreover, they predict that RIA’s AUM could top $26 trillion by 2030—a seven-fold increase.1
If you’re considering going out on your own, start by thinking about how to structure your business—and when to make your move.
Going independent, of course, means that you are free to pursue your unique vision for building a business and serving clients. But the RIA structure, in particular, is suited to advisors who are committed to putting their clients’ interests first. In fact, according to a recent study by Charles Schwab, 94% of advisors who chose the RIA model did so to gain the freedom to do what’s best for their clients.2 If you want the freedom to design portfolios without conflicts of interest, act as a fiduciary, and stay in compliance, the RIA structure may be right for you.
Independence under the RIA model can be good for business too. Within the RIA structure, you have the opportunity to offer a wider array of services and, as a result, generate more revenue. And you can set fees that are commensurate with the level of service you provide—including both flat fees as well as fees based on percentage of asset. Indeed, 87% of Private Advisor Group’s advisors have increased their book of business since going independent.3 Plus, according to Cerulli, 73% of advisors report they’re able to build better long-term relationships with their clients under the RIA model.1 Stronger relationships also may provide opportunities to attract the next generation of your clients’ families to your practice, increasing the value and longevity of your business.
You can choose from several independent structures under the RIA umbrella. Select the one that best suits your vision.
Hybrid. As a hybrid advisor, you hold dual registrations with an RIA and a broker-dealer. This structure gives you the flexibility to retain your commission business while also offering fee-based investment management and advice. It also buys you some time to convert your existing brokerage business to an advisory model.
Independent Advisor Representative (IAR). As an IAR, you can choose to affiliate with or work for an RIA firm. By affiliating with an RIA firm, you can retain your independence—and even your own brand— while outsourcing some of your business activities to the firm. For example, you may outsource compliance oversight, administrative and marketing support, and other aspects of your business, leaving you more time to spend with clients and prospects.
Alternatively, you may choose to join an RIA as an employee, which enables you to leverage the brand of the established firm and take advantage of the infrastructure and resources the firm has to offer.
Even when you choose to go independent, you don’t have to go it alone. By working with an organization devoted to providing support services to independent financial advisors, you can gain access to valuable compliance and operational support, leaving you more time to spend with clients and prospects. Choose an organization that’s right for you by weighing these considerations:
Cultural fit. Are you looking for an organization that gives you access to the latest technologies and services, allowing you to provide a differentiated client experience? Or perhaps you need an organization that provides the highest payout so you have the capital you need to run your business and invest in your own infrastructure.
Compliance. A strong foundation and culture of compliance are critical to the long-term health and success of your business. Look for an organization that has high ethical standards, works with upstanding advisors, and has a well-known reputation for compliance expertise.
Payouts. Consider the services you receive in relationship to payouts. The lower the payout, the higher level of services you should expect.
Transition support. The process of transitioning to independence is one of the biggest concerns of most advisors. Make sure the organization you’re considering has the capabilities to guide you through a seamless, reasonably short transition. Keep in mind that skipped steps and elongated timelines could adversely affect your revenues.
The landscape of the financial services industry is constantly evolving. New regulations and fiduciary considerations, as well as fee compression are all putting pressure on old business models. The world is moving ahead, and by going independent, you have more flexibility to accommodate the changes and thrive in the years ahead.
Against this backdrop, independent advisors are free to be more client-focused, offer innovative services that generate more revenue, and offer the fee transparency demanded by regulations and investors alike. No wonder more advisors are going independent.
According to Charles Schwab, advisors who have successfully transitioned to independence are urging their fellow advisors not to wait to make the move. Nearly all say they have no regrets and wish they’d gone independent sooner. They got off to a good start too, retaining an average of 87% of their clients in the move.2
1 Cerulli, U.S. Advisor Metrics 2018: Reinventing the Client Experience.
2 Charles Schwab, Independent Advisor Sophomore Study, March 2018.
3 Private Advisor Group Annual Loyalty Survey, 2019.
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