Four questions for reps weighing an RIA move

The number of registered representatives who are considering dropping their securities licenses and setting up their own registered investment advisory firm continues to grow.¹ Whether affiliated with a broker-dealer or an employee of a wirehouse or other securities firm, these advisors are weighing the costs and benefits — and the value to current and future clients — of remaining with a broker-dealer or creating an RIA business.

Over the years, AssetMark has helped hundreds of registered reps and rep groups determine if making the transition is right for them and their clients. As a result of this work we have identified four key questions that any advisor considering a transition should think about.

These questions can help crystalize advisor thinking on what could well be the defining decision of their career:

1. What is your value proposition? This question is basic and often overlooked. In an age of unparalleled consumer choice, advisors without a specialty, niche or clearly articulated area of expertise will find it difficult to compete, especially as an independent business. Being able to define one’s value specifically yet simply is important because an advisor’s area or areas of specialty will inform the kinds of tools and services the new business will need. For example, a breakaway broker specializing in financial planning likely will need different resources and support than an advisor who specializes in fixed-income investing.

2. What are your business strengths, and what aren’t? It’s safe to assume that the area or areas of an advisor’s focus reflect key strengths. Are business development, finding new team members or handling administrative details other strengths? They may or may not be, but they are crucial aspects of running a business. While advisors tend to be entrepreneurial by nature, they typically don’t enjoy the practice/business management aspects of their job — which only increase when a practice becomes an RIA business.

3. How will the work of the new firm get done? In cutting their ties to a broker-dealer, a registered rep-turned-RIA must take on many of the customer-related functions performed by their former firm as well as new tasks connected to running their own independent business. To be sure, the custodian or custodians selected by the advisor will be performing many of the necessary jobs, but not all. For those, the advisor can choose to create their own systems, often selecting the software and/or vendors to accomplish specific functions, or they might use third-party providers. It is at this juncture that many about-to-be new RIAs feel overwhelmed. With so many choices to make about core advisory functions — portfolio management systems, CRMs and financial planning tools, for example — as well as decisions about marketing, compliance and setting up a payroll system, advisors often find that using a comprehensive platform solution that connects to their custodian(s) and provides an array of other needed services may be worth considering.

4. Should I consider a platform provider? If the idea of being independent and owning a free-standing business is appealing, but the prospect of tackling technology, operations, administration and marketing issues all alone sounds daunting, considering a platform provider may make sense. A platform solution that has links to custodians, interfaces with most providers of advisor software and has a staff of experts to help with marketing, administration and other functions, including investment management, can provide advice and services that may pay for themselves. In fact, when asked about the tangible, direct benefits of outsourcing investment management, the majority of advisors cited that they have seen growth in their total assets under management, higher personal income and lower operating costs for their practice.

Here’s how one former independent rep described her experience with our firm: “When the idea of using AssetMark was first presented to me, I was 100% against it. I felt that I could just go directly to Fidelity and pay less. But my experience has changed my view completely…The service I’ve received is outstanding, and there’s no way I could have accomplished the transfer without all the hard work of the firm’s team members…. And I’m not burdened with the pain of having to take care of payroll, unemployment insurance, workers compensation, health insurance, and everything else I had to do in previous years.”

In addition to lower direct overhead expenses and more time to spend with clients, advisors who use a wealth advisory platform provider like AssetMark also see higher personal income and greater profitability. Studies have shown that most outsourcing advisors see a 27% growth in total assets under management and 26% higher personal income.

For advisors who realize how difficult it now is to compete against professional full-time managers and decide to outsource investment management, there are other benefits. Those advisors, whose role changes from being an investment manager to managing investment managers — more akin to how endowments operate — become true fiduciaries, no longer beholden to their own performance. Instead, advisors are able to evaluate the performance of the best professional managers available and hire and fire managers when warranted based on changes in strategies or investment mandates. Eighty-four percent of outsourcing advisors report greater oversight of portfolios while saving up to eight hours per week, offering them additional capacity to manage and grow their practice.

The takeaway: Advisors who make the move to becoming an independent RIA should seriously consider leveraging the benefits of an outsourced wealth advisory platform. It can have a tremendous impact on the success of their business.

1. Cerulli "Advisor's Preferred Channel if Advisor Left Current Broker/Dealer"