Deciding to pursue an independent path as a financial advisor is a journey in itself, requiring savvy choices and self-aware decision-making.
Chances are that the topic of going independent has come up in office and networking circles, as colleagues weigh their options. If you’re considering going out on your own, these factors will play a role in how you decide to go independent:
— Your desired level of independence.
— Your appetite to oversee your own regulatory and supervisory compliance.
— Integration, build-out and maintenance of a tech stack.
— Resources to maximize your revenue and profitability.
— Business continuity and succession-planning activities.
As you start to move toward independence, you need to decide what form you want that to take. Each option has pros and cons, but ultimately the best path for you depends on your goals and how you want to serve clients.
Here are four common pathways to independence for financial advisors.
Become an Investment Advisor Representative at an RIA
More advisors are embracing the benefits of a corporate registered investment advisor, or RIA, structure to best serve their clients and grow their practices. An RIA is a firm or legal entity that is licensed either with the Securities and Exchange Commission or at the state level to offer investment advisory services.
Becoming an investment advisor representative, or IAR, at an RIA can give advisors the full support they need. An IAR works for the firm after passing the necessary licensing test, usually the Series 65, to offer investment advice. Generally the advisory firm charges clients a flat or hourly fee for services or bills them a percentage of the assets it manages.
Aligning with the right corporate RIA can achieve similar results to owning an RIA without the added burden and cost of building your own practice and the responsibility of creating your own Form ADV, a uniform form used by investment advisors to register with both the SEC and state securities authorities.
Advisors can partner with a corporate RIA that allows its advisors to “co-brand” and conduct business under their own private label. A broker-dealer may have a corporate RIA entity attached to the umbrella organization that advisors can register with. The key is to find a broker-dealer whose corporate RIA does not limit your ability to serve clients the way you see fit. Its business model should match your lifestyle and professional goals. Custodial flexibility, open architecture, fee transparency and custom technology are common in this setup.
Start Your Own RIA
Before deciding to start your own RIA, consider the realities of 100% firm ownership. True independence with this model (you’re in charge of it all) means that all of the regulatory oversight, building and maintaining of the advisory firm falls in your lap.
Advisors who opt to build their own RIA generally are looking for the best pathway to serve clients on their own terms, with reduced conflicts of interest from the parent company or corporate RIA and compliance oversight. Setting up a solid framework and infrastructure are important, from tech adoption, practice management decisions and marketing strategy to custodial selection and operational decision-making.
Help is out there, as there are several membership-based organizations that assist fee-only IARs with establishing an RIA framework. That’s either by launching their own RIA (XY Planning Network) or by tapping into a turnkey RIA platform (Garrett Investment Advisors).
Buy an Existing Practice
It’s possible that you’re at a place in your career where buying an existing practice is more advantageous.
A high number of advisors are approaching retirement age and looking for a succession opportunity, so this is a viable option. If you have the capital to buy a practice, you can inherit an established book of business.
Firms with an established track record that have a standard and documented way of doing business can be a ready-made solution. But before jumping into a running car with a full tank of gas, you still need to inspect what’s under the hood. You need to analyze an established business and evaluate carefully whether the purchase makes sense for you.
Join an RIA With the Idea of Taking Over One Day
Joining an RIA with the intention of owning it one day gives you a chance to see how the firm is organized and managed, learn from the management team, serve clients and participate in daily activities that support the growth of the firm.
This is a longer-term strategy to consider if you are early in your career, do not have past experience working for an RIA or are not ready to jump into 100% independence.
In line with a succession strategy, the firm owner may be primed to teach you all he or she knows and put you in a strong position to take the reins one day. As you grow with the firm, the clients grow with you and become familiar with your work. Eventually, you’ve woven yourself into the fabric of the practice.
Your pathway to independence is within reach: Select an option that is in line with your business goals and gives you the ability to improve your service to clients.
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