GOING INDEPENDENT
Navigating the Nuances of Financial Advisor Payouts: Insights and Strategies
Who Owns Your RIA Firm? Navigating the Landscape of Private Equity in RIAs
Fee Structures for Independent Financial Advisors
Navigating the multifaceted landscape of running your own practice as an independent financial advisor presents a plethora of choices and challenges. This autonomy is undoubtedly one of the driving forces that leads advisors to take the leap into independence, yet it can also be an overwhelming endeavor. The allure of freedom is undeniable, but the question remains: how do you strike the delicate balance between self-sufficiency and seeking external assistance? Drawing upon my tenured experience in this field, I'd like to shed light on this matter. Identify Your Core Focus: At the heart of your practice lies a core value, a driving force that motivates you. Perhaps it's the art of crafting comprehensive financial plans that truly resonate with your clients. Alternatively, you might take pride in constructing diverse investment portfolios. It could be your mastery of patented software for client management or fostering a tightknit company culture. Whatever it is, it's imperative that this core focus aligns with your passion and expertise. Even more so, it should serve as a unique selling proposition that distinguishes your firm in a crowded marketplace. Delegate Wisely : Acknowledge that you can't be a master of everything. Certain tasks and services may not align with your passion or proficiency. Before deciding to outsource, evaluate the long-term impact of these tasks on your bottom line. If they are significant contributors, consider investing in training for yourself or your team. For instance, if administrative tasks related to investment services are not your forte, it's crucial to have a knowledgeable and skilled individual or team to handle them efficiently. This may involve training an employee or outsourcing to a specialized service provider. Conversely, if you recognize the need for a website to market your firm but lack the expertise, hiring a reputable marketing firm, especially one with industry-specific knowledge, is a prudent step. Vet Your Resources: With a clear understanding of what you should handle in-house and what should be outsourced, the next step is to choose credible resources. In today's fiercely competitive market, countless service providers vie for your business, a reality you're undoubtedly familiar with given your financial services background. However, this saturation often results in a glut of claims about being the best in the business, potentially compromising the quality and differentiation you seek. To mitigate this, it's imperative to thoroughly vet potential resources. Seek out partners with a track record of excellence and expertise specific to your needs. As an independent financial advisor, the choices you make in managing your practice will significantly impact your success. By identifying your core focus, delegating tasks judiciously, and carefully vetting external resources, you can strike a harmonious balance between self-sufficiency and seeking assistance. This approach will not only enhance your efficiency but also differentiate your firm in a competitive landscape, ultimately leading to greater success in serving your clients' financial needs.
Traditional client prospecting is a solid method that can yield an annual revenue increase of $5-10M. It's a straightforward and risk-averse strategy. But if you're looking to achieve a more ambitious scale, acquisitions could present an attractive alternative. An effective acquisition can immediately augment your assets under management (AUM) by roughly $30M, in addition to bringing in an average of 100 new clients. Before proceeding, it's crucial to address two pivotal questions: 1. Is Your Operational Infrastructure Ready for an Immediate Influx of New Clients? 2. How Are You Strategically Positioning Your Practice to Identify Acquisition Opportunities? Operational Readiness: A Core Requirement For any financial practice, regardless of its size, a resilient operational infrastructure is critical. This encompasses compliance, fund management, and client service. Each area needs streamlined processes to facilitate good practice and mitigate risk. Onboarding a handful of clients each week is manageable, but integrating 100 new clients within a short period requires robust preparedness. First impressions are singular events, and they need to be strategically managed. Navigating the Complexities of Account Transitioning Effective repapering—the process of transitioning accounts—is another crucial consideration. This involves revisiting account styles, compliance procedures, automated clearing house (ACH) transactions, and other pertinent details. Your tracking systems must be sufficiently rigorous to manage these complexities. Identifying Lucrative Acquisition Opportunities: A Proactive Strategy We often consult with network advisors who express interest in acquiring a book of business. Yet, when asked about their approach to identifying these opportunities, many do not have a coherent strategy. Strategic Measures to Identify Opportunities: 1. Hire a Specialized Recruiter : Utilize their expertise to find advisors open to selling their practice. 2. Direct Outreach to Industry Peers: Conduct cold calls or emails to understand their exit strategy and readiness to sell. 3. Attend Industry-Specific Events: Utilize conferences and educational seminars as platforms to discuss potential acquisitions with other advisors. 4. Leverage Professional Networks: Connect with peers who might be interested in a merger or acquisition. In short, waiting for an acquisition opportunity to present itself organically is not a viable strategy. Adopt a proactive approach, similar to the zeal applied in building your existing practice.
From my various roles in Compliance and Operations, I've had a bird's-eye view of how advisors are running their practices. Over time, I've come to notice that the most successful advisors share a common trait: they have great team members. As Steve Jobs once said, "The secret of my success is that we have gone to exceptional lengths to hire the best people in the world." Of course, not everyone has Apple's budget for hiring. But building a dream team doesn't have to break the bank. Below is a step-by-step guide on how to hire 'ARC' (Accountable, Reliable, Capable) talent without an Apple-sized budget. Step 1: Define the Role The first step in any hiring process is to define the role you're filling. Write out a clear job description and task list that outlines what this role will involve. This will not only help you articulate what you're looking for but also create a more targeted and meaningful job posting. Knowing what you need upfront helps you screen candidates more effectively and saves everyone's time in the long run. Step 2: Start with a Phone Interview Once you've received some promising resumes, begin with a 15-minute phone interview. The questions you ask should be general. For example: • What attracted you to this position? • Why do you feel you would be a good fit for this role? Your primary goal during this call is to ascertain whether you can envision this person as part of your daily office life and whether they possess the minimum necessary experience. If the call goes well, it's time to schedule an in-person interview. Step 3: The In-Person Interview This is where you dig deeper. The in-person interview should consist of more situational questions that can provide insights into a candidate's thought process, behavior, and compatibility with your team's culture. Questions like: • How would you notify a client of an error you made in their account? • How would you handle a disgruntled client or teammate? Feel free to include topics or scenarios that are particularly relevant to the kind of service or administration tasks the role will require. Step 4: The Final Interview After the in-person interviews, you should have narrowed down your candidates to a pool of 2-4 top contenders. The final interview should involve: a. Personality Profiles I often use DISC or Strength Finders assessments. Candidates complete these prior to the interview, giving you the chance to evaluate how they would fit into your existing team dynamics. b. Team Member Introduction Allow your candidate to meet other team members without you present. This provides an unbiased avenue for both sides to gauge fit. c. Skills Test If you're hiring for a specialized role, administering a skills test can confirm whether the candidate possesses the necessary capabilities for the job. In the words of Lawrence Bossidy, "I'm convinced that nothing we do is more important than hiring and developing people. At the end of the day, you bet on people, not on strategies." Hiring the right people can seem daunting, but a well-crafted process can make all the difference. Taking the time to find team members who are not just competent but also culturally and strategically aligned with your vision can set the stage for long-term success. Happy hiring!
Significant market events like the Schwab/TD Ameritrade merger have catalyzed an overall reassessment within the financial advisory community. Mergers of this scale inevitably generate shifts in talent and prompt advisors to reconsider their affiliations. As a multi-custodian firm, we advocate for leveraging these transitions to enhance your business model. This is especially pertinent given the heightened competition among custodians, where personalized service, competitive fee structures, and economies of scale are becoming increasingly vital. Many advisors experience greater satisfaction from client interaction and business growth rather than the administrative rigors of running a regulated entity like an RIA. The trend of 'tucking in'—affiliating with larger RIAs to leverage their infrastructure—continues to gain traction as it allows advisors to focus on their core competencies. Succession planning and liquidity considerations are also increasingly influencing advisors' choices of business models as advisors seek affiliations that could potentially meet those needs. Our succession planning consultants can address these needs, offering an investment pathway into our collective success, while also fostering discussions around business life cycles. Determining Your Ideal Business Structure For advisors contemplating independence, there are essentially three pathways: establishing your own Registered Investment Advisor (RIA), aligning with an existing RIA, or joining the corporate RIA of an Independent Broker-Dealer (IBD). Each has distinct advantages and challenges. Aligning with the Corporate RIA of an IBD This model offers a transitional route to independence, allowing you to own your business while capitalizing on the resources of an IBD. Regulatory compliance is linear, as you become an Investment Advisor Representative of the IBD. However, this affiliation does constrain you to the IBD’s approved custodian, product offerings, and technological platforms. Starting an RIA For advisors seeking the zenith of independence, establishing your own RIA grants full control over key decisions, from custodian selection to technological adoption. However, this also entails the intricate task of developing and overseeing compliance protocols, operational processes, and cybersecurity measures—an endeavor requiring meticulous planning and resource allocation. Affiliating with an Established RIA The 'tuck-in' model permits you to function as an Independent Advisor Representative under an established RIA, thus eliminating the direct responsibilities and costs associated with managing a regulated entity. These affiliations often offer hybrid options, broadening your client service capabilities and even providing structured succession and liquidity solutions. ARC offers complete independence to advisors with the ability to choose how they affiliate with us. Advisors have the option of joining one of our existing DBAs or creating their own, with or without the help of our in-house marketing team who can assist with logo and website design. Conclusion: Your Path to Independence The journey towards independence warrants rigorous due diligence. Engage with multiple industry stakeholders, consult third-party recruiters, and scrutinize the consistency of information you gather. Advisors should see firms not just as vendors but as educators and strategic partners. Advisor Resource Council stands as a supportive pillar in this landscape, offering customized transition pathways for advisors seeking autonomy. By thoroughly considering your structural options—be it aligning with an IBD's corporate RIA, initiating your own RIA, or affiliating with an established entity—you empower yourself to align your business with your long-term objectives and professional ethos. As you move forward, keep these critical factors in view, and remember that the journey to independence is not a solo endeavor but a collective experience guided by your choices and supported by your partners.
For many financial advisors, the allure of going independent is driven by the desire to break free from the constraints of traditional employment - Maybe you've grown tired of not having full control over your business or your career path, or perhaps you yearn for the opportunity to build a practice that truly aligns with your vision. With this, it's easy to get caught up in the misconception that becoming an independent financial advisor demands a significant revenue stream from the outset. The truth is, establishing a viable independent practice doesn't always require an extravagant budget. In this article, we'll address the lower end of the production scale, focusing on how to make your journey to independence both achievable and rewarding. Two Paths to Independence As you contemplate your move towards independence, it's essential to understand your options. Two primary routes are: setting up your own Registered Investment Advisor (RIA) firm, or affiliating with an independent broker-dealer (IBD) that offers its corporate RIA which is what employee firms do. While setting up your own RIA is a feasible option, it often entails higher costs and complexities. For this discussion, we'll focus on affiliating with an independent broker-dealer, as it is more suitable for those exploring independence at the lower production levels. Defining Your Minimum Production Let's delve into the numbers. Imagine you're considering starting with a $300,000 gross revenue target. Why $300,000? This figure offers a balance between making a living that surpasses traditional employment while maintaining a manageable scale for an independent practice. At this level, you're likely to retain around $255,000 in revenue after an average payout of 85%. Understanding Costs To fully understand the financial landscape, let's break down the costs you'll encounter as you embark on your independent journey: 1. Home Office Supervision: Plan for approximately $5,000 annually for home office supervision, which contributes to your higher payout. 2. Cost of Doing Business: This category covers a range of expenses, including licensing fees, firm affiliation fees, technology costs, and Errors and Omissions (E&O) insurance. On average, this will amount to around $10,000 annually. 3. Miscellaneous Expenses: Allow for roughly $5,000 annually to cover other miscellaneous business expenses, which can include office supplies, phone costs, and potential marketing efforts. Calculating Net Income After deducting these expenses from your retained revenue of $255,000, you're left with around $235,000 in net income. Considering the freedom and control that independence offers, this can be a substantial improvement over traditional employment for many advisors. Choosing the Right Affiliation When selecting an independent broker-dealer to affiliate with, it's crucial to find a firm that supports advisors at your production level. Look for an institution that values your contribution and provides the flexibility you need. Avoid firms that impose higher minimums that could place unnecessary pressure on your business. Planning for Client Transition One of the critical factors influencing success as an independent advisor is the retention of clients during your transition. Keep in mind that the clients you bring with you are your future performance. The more clients you can retain, the more secure your financial outlook will be. Smoothly transitioning your clients and maintaining strong relationships are key to building a sustainable practice. Looking Ahead Embarking on the journey to independence can be both exhilarating and challenging. By setting realistic expectations, understanding your costs, and strategically planning for client retention, you can confidently pursue your dreams of establishing an independent practice that reflects your vision and values. Remember, independence isn't just about escaping the confines of traditional employment. It's about reclaiming control over your career, your business, and your future. If you're ready to explore the possibilities of independence or have questions about the process, don't hesitate to reach out to us at info@thearcfirm.com or me directly at sean@thearcfirm.com .
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