Answering questions about going RIA

The recent two-day InvestmentNews RIA Summit had the audience queueing up far more questions than could realistically be answered during the time allotted for the sessions. When the content leaves attendees eager for more, you know the event was well received.

I participated on a panel during the summit where we discussed starting your own RIA, versus tucking into an existing firm. This panel was no exception, with audience participation primed from the start.

While many questions generally necessitate more nuanced answers, the following are a few abbreviated examples of the type of questions asked during the panel I participated on, which I felt would be worth answering now.

What level of client assets should you have before starting your own RIA? The decision as to whether to start your own RIA or tuck into an existing firm should not be based solely on your asset level. There are satisfied advisers of all sizes who have pursued both paths. Instead of focusing on assets, consider what your vision for your practice is, what resources you will need to achieve that vision, and which path can best help you accomplish that goal. For some, that results in starting their own RIA. For others, that path is best traveled via a tuck-in option.

Will I retain ownership of my book if I tuck into a firm? There are plenty of tuck-in options available where you retain 100% ownership of your book of clients. But importantly, there are also options available that enable you to monetize some, or all, of the value of your practice as a component to joining the firm. The latter can often be appealing as part of a succession strategy.

How much do tuck-in firms charge for their services? Just as your own prospective clients must consider both your fee as well as the value of services they will receive in return for that fee, it is no different with tuck-in options. Some firms charge minimal fees, while others can be a multitude larger. The value provided varies accordingly as well. Thus, it is important to consider both sides of the coin when asking this question.

As the average age of advisers continues to increase, how are you seeing the tuck-in model work for succession planning purposes? A tuck-in option generally addresses two succession needs. First, the tuck-in firm will often be able to provide you with a catastrophic succession solution for your practice. If you have not previously addressed this need, a tuck-in option can potentially instantly solve for it. On a longer-term horizon, tuck-in firms generally can provide a more seamless succession solution for your practice versus what you could experience with an externally derived liquidity event.

Should we be concerned about receiving a SEC/state exam of our own RIA? There is an entire ecosystem of solution providers to help you navigate the compliance responsibilities of running your own RIA. If that is nonetheless unappealing to you, tucking into an existing firm allows you to essentially outsource compliance to the RIA you are joining.

As some tuck-in firms grow larger, don’t they run the risk of losing their culture? Any company in any industry faces the challenge of maintaining their culture as they grow larger. Several tuck-in firms have in part looked to address this by remaining hyper focused on a particular profile of adviser to work with. Such niches include advisers focused on passive investment strategies, advisers over a certain asset threshold, advisers with a heavy emphasis on financial planning, etc. While not a cure-all, such approaches provide a way for firms to continue to foster the culture they seek to maintain.

What is the ideal time to move to the RIA model? Ask any adviser who has already made the transition, and the No. 1 response you will hear is … “I wish I would have done it even sooner.”

Keep an eye out for a second InvestmentNews RIA Summit coming later this fall. If the speaker lineup is anything like the first one was, it is sure to once again leave the audience eager for more.

Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.