Veteran advisors can find themselves confronting a dizzying array of options when it comes to breaking away from the restrictive management and structure of the wirehouse and pursuing an independent path. Registered Investment Advisor (RIA) firms have experienced impressive recent growth as savvy investors seek out fiduciary advisors with an obligation to put clients’ interests first and eschew the sale of commission products. For advisors who wish to pursue a fiduciary practice as an RIA, knowing what to expect during the transition from the wirehouse to the RIA model can ensure that the move is smooth, serves client interests and incentivizes clients to make the move, and starts the new practice on solid footing.
What Is An RIA?
An RIA advises clients on investments and manages investor portfolios. The services provided by RIA firms often extend well beyond mere investment advice and wealth management, however. RIAs are trusted advisors, assisting clients with everything from retirement and estate planning to budgeting and even insurance.
RIAs are fiduciaries, meaning they are obligated to avoid conflicts of interest and disclose risks associated with investments. These ethical obligations distinguish RIAs from broker-dealers, who are permitted to advise clients to purchase products that are “suitable” for their portfolios, even if those products may not be the best investment for the client. As a result, sophisticated clients frequently seek out RIAs to handle their investment needs.
According to McKinsey, the RIA sector is the fastest-growing category in the U.S. wealth management market. Particularly in uncertain economic times, clients are more aware than ever of the need for knowledgeable advisors who can ensure that they meet their investment goals.
What Do New RIAs Need To Know About Costs And Compensation?
In the wirehouse, advisors can generally expect to receive anywhere from 35-50% of gross dealer concession (GDC), depending on production and experience. In exchange, the wirehouse provides one-size-fits-all marketing, technological support, office space, staff, compliance, and overhead solutions. By contrast, independent advisors have both the freedom and the burden that comes with managing their own costs of doing business.
Properly leveraging resources and taking advantage of opportunities to cut overhead costs can pay big dividends for independent advisors, but does not come without costs of its own. RIAs who spend a lot of time managing back office and business functions can find themselves without the time to focus on building and maintaining practice, particularly in the early days after leaving the wirehouse.
Understanding the costs of running a new business, and understanding the different support opportunities you can exploit as you get started, can help you hit the ground running and ensure survival even in the lean early days of independent practice.
Think Turn-Key
For advisors who are uncertain about taking on all of the responsibilities of establishing a brand-new business, joining an established RIA may seem like the only option for independence. However, a number of firms offer “turn-key” models that can be customized to suit a new independent advisor’s needs. While these models can come with some of the drawbacks of the wirehouse — fixed costs and a “one size fits most” approach to technology, custody, and back-office support — they offer a level of flexibility and customization that can work for almost every advisor’s practice preferences and needs.
Working with a consultant or recruiter who understands the nuances of each turn-key provider and can help you select the one that best fits your practice and client needs can ensure that you make the right choice from day one.
Planning Ahead Is Critical
For many advisors, the decision to leave the wirehouse starts with dissatisfaction, but successful RIAs don’t stop there. Knowing where you want your RIA to go — your desired client base, investment philosophy, and business goals — should drive every decision you make, from the credentials you pursue, to the office locations you consider, to your client communication tools, to the partnerships you undertake with custodians or broker-dealers.
Having a well-defined business plan can help to ensure you’re not wasting energy and time pursuing fruitless business strategies and reinventing your practice. Getting the right advice from the outset can help you build a business that serves both your and your clients’ needs.Talking to a professional can help. At Terrana Group, we’ve got decades of experience with independent broker-dealers, RIAs, and more — we can make sure you’re asking all the right questions, and getting answers that will serve you well.
Want to Keep the Conversation Going?
Going independent is more complicated than ever, and the right partner can make all the difference. At Terrana Group, our experienced and knowledgeable professionals welcome the opportunity to consult with you to determine the right platform for you going forward — one that satisfies your long term objectives and is also best for your clients!
Over the course of nearly 30 years, we have helped facilitate thousands of professional placements for Advisors, with client assets transferred exceeding $67 billion dollars. We have completed placements in most every major city throughout the United States, while building deep relationships with the advisory world’s most sophisticated and notable firms — including major Wall Street brokerages, most Regionals, Boutiques, Banks, Independent Broker Dealers, RIAs and Custodians. We have a broad knowledge of the deals that are currently being offered and will ensure that you are being presented with the offer which will be best for you.
Confidentiality, professionalism, and respect are essential to our practices and beliefs; we handle each and every step of the placement process with complete communication, keeping you informed while making the process smoother from beginning to end.
We are proud to always be considered as a great asset by our clients because of our proven expertise, many years of knowledge, and acute attention to detail. Financial Advisor Recruiting Services are not all created equal; we guarantee that the TG experience for clients and candidates is always world class.
We are based in Chicago, with a nationwide reach. Let us know you are interested by contacting us today. To get the conversation started, email info@terranagroup.com or give us a call at 312.655.8380 today.
