Advisors start their own firms for a host of reasons. A new registered investment advisor firm can offer its founder entrepreneurial independence. Some founders make the move to become fiduciaries after growing disenchanted with a career at a commission-based broker-dealer.
But not all new RIAs have the same starting line.
Trade publications serving the financial advisory world are chock-full of news about breakaway brokers who leave their current firm and take a book of business with hundreds of millions of dollars under management. Even a lower level of assets under management gives a new firm a base of revenue.
Starting from scratch, however, is a different story altogether. A brand new RIA, with few or no assets, presents unique challenges to a founder.
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Marketing a Brand-New Firm
Getting the word out is the No. 1 job for any new business. Phil Telpner is president at Breakout Private Wealth in Glenview, Illinois, which was registered in July 2020. Before launching, Telpner studied other industries and their marketing. He noted concepts that could be applied to his business.
“It’s important to think who, not how. I could be a world-class advisor, but without attracting the right type of clients, I will not be able to be present for my family, my clients or myself,” he says.
Telpner suggests that new advisory firms match their marketing to the type of media their ideal clients will likely use. “Be willing to fail a lot here. If you think you will get this right from the start, you will be disappointed. There are some platforms that seem to give RIAs a jumping off point, but there is no one-size-fits-all path to success on this. Do not let anyone tell you otherwise,” he says.
Chris Struckhoff, wealth manager at Lionheart Capital Management in Irvine, California, uses his website as the hub for his marketing.
“I have my weekly email newsletter, posts to social media and I am starting a blog. I also run ads on both Facebook and Google to help drive additional traffic to my website,” says Struckhoff, who launched his firm in 2019.
He offers marketing advice for those opening a new RIA. “Pick a wildly specific niche to focus on,” he says. “You are not going to beat a massive RIA who spends $10,000 a month on ads. You can have a focused website and marketing material that speaks directly to a person. If you only work with dentists in your state looking to sell their practice to retire, you might have a better chance of understanding their specific needs more than a generalist RIA.”
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Developing a Sustainable Business
Tricia Rosen is a certified financial planner who launched Access Financial Planning in Andover, Massachusetts, in 2018. She says the current state of financial technology, as well as changes within the industry, allowed her to run a one-person firm more easily than in the past.
“The cost of starting up and running an RIA is definitely challenging, but it is becoming less challenging over time because of technology innovations, competition between custodians and the industry support from organizations (that) value making financial planning more accessible to more people,” she says.
That’s only improved since she launched her firm. She cites new technology solutions such as Holistiplan, Wealthbox and RightCapital that help RIAs operate.
These relatively new tools are more affordable than their predecessors, but offer the same function, Rosen says. “They provide a lot of bang for the buck for a small RIA,” she says.
Dasarte Yarnway launched San Francisco-based Berknell Financial Group in 2015. He recommends that new RIA owners prioritize their technology wants and needs.
“A successful RIA needs only a few staple pieces of technology. All the rest is insignificant to compete with others in the industry,” he says. “There are million-dollar RIAs that still use Excel and work out of their homes, and other RIAs that haven’t acquired their first clients but have all of the specs.”
[Read: Financial Advisor Q&A: The Foundation for Financial Planning.]
Balancing Workload and Efficiencies
Any new business requires the owner to wear any number of hats. A financial advisor doesn’t only handle marketing and operations, but also the hands-on work of helping clients with their planning and investing needs.
“As an entrepreneur, there’s a natural tendency to want to be involved in all areas of the business,” says Brett Koeppel, who founded Eudaimonia Wealth in Buffalo, New York, in 2019.
“I try to pay really close attention to what tasks provide me energy and a sense of purpose. By delegating the energy-draining roles, you allow yourself the ability to be fully present in the ones that matter,” he says.
Rosen says juggling different activities can be a challenge. She outsources important, hard-to-learn tasks such as website design and development, she says.
“In general, I try to do things myself to keep costs down, but if I’m spending too much time on something, then I will outsource it.” While she hasn’t had a consistent need for staff, she will likely eventually hire a paraplanner, she says.
Supporting Yourself as a New Business Owner
New owners of advisory firms often must be creative about keeping a roof over their heads and food on the table.
Yarnway’s startup tale demonstrates a high level of entrepreneurial hustle. He had a full-time job as an account executive and held client meetings for his own fledgling business at a WeWork location. Even after he signed up 15 households at his RIA, he continued to work nights at a See’s Candies factory and listed his condo on Airbnb.
“Starting any business is a risk in which you have to be mentally prepared to pay the cost, whatever it may be. For the person who is thinking about starting an RIA, talk to your loved ones and have honest conversations with yourself about your goals before you make the leap,” he says.
Other advisors rely on savings or a spouse with an income. Even then, it’s not always easy, as savings may become depleted, or a formerly two-income household now covers expenses with one.
“I used some savings, and my wife works, but to imply that this is easy or comfortable is a lie,” Telpner says. “It is hard and scary, but if it was not, everyone would do it.”
“Creating something from scratch is not easy, and most people will think you are crazy,” Telpner adds. It can be hard on your family, and few people understand what you go through. “I have struggled with this,” he says.
Advice for the New RIA Owner
Telpner found support through a group called Advisors Growing as a Community, co-founded by San Diego financial planner Taylor Schulte. Telpner says the ability to compare notes with other advisors has been valuable.
“Success leaves clues, and when I get stuck or down on myself, I turn to others that have survived and prospered for inspiration,” he says.
Rosen, too, recommends connecting with a community of others in the industry. “Learning from other advisors is invaluable, and the camaraderie will give you a boost on those days when you want to throw in the towel,” she says. “The industry is moving in the direction of valuing and supporting solo and small RIAs more and more, so I’m expecting to see even more support over time.”
Yarnway has several pieces of advice for those who would like to follow in his footsteps. “Speak to a lot of advisors. You’ll be able to sidestep pitfalls from the wisdom of their experiences,” he says.
He also recommends being deliberate as the business grows. “Cut once, but measure twice. Internalize your business plans, the clients you want to serve and how you will reach them,” he says.
Employing good compliance consultants will relieve some stress, Yarnway says. “And document everything. Track your goals, activity and marketing experiments,” he says. “Success leaves fingerprints, and the data will let you know if you are going in the right direction.”
Koeppel offers encouragement to those hoping to start an RIA. “Go for it. Starting your own firm will be one of the most challenging, but rewarding experiences you’ll have,” he says. “While it can be easy to focus on the economics of making the leap, the real benefits are qualitative. The ability to feel like you’re making a meaningful difference in the lives of others is what makes it all worth it.”
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Starting an RIA From Scratch Can Be Challenging, But Also Rewarding originally appeared on usnews.com
