How can wirehouse breakaway advisors set themselves up for success as independent RIAs? Develop an entrepreneurial mindset and get ready to widen your focus.
“Running a business is a big leap,” says Matt Sonnen, founder and CEO at PFI Advisors. RIAs must be committed to overseeing everything from customizing the software to figuring out benefits and submitting payrolls.
Over the years, I’ve helped quite a number of advisors make the transition and have worked with some skilled experts, two of whom I’ve consulted for this article. Here’s the collected wisdom on the top seven signs to heed on the road to RIA success.
1. Begin with the end in mind
“Before you inaugurate your new firm, it’s critical that advisor roles and the goals for the firm be clearly defined.” says Chris Winn, founder and CEO of AdvisorAssist. For instance, “are different advisors going to be charged with raising assets and another with running client money?” he asks.
It’s a huge mistake to figure these and other operational points out after the fact. When in the middle of a transition, advisors are initially preoccupied with the transfer of client assets. Winn says the most successful teams actively plan what their firm will look like three to five years out. That drives a host of other decisions, including technology and office space.
2. Build it so they can come
Sonnen has a well-defined process to help new firms set up properly. First, attend to key details of the business structure. Then, he says, focus on the RIA outer- and infrastructure.
“It’s best to try and find suitable real estate right away,” says Sonnen. “This can often take the most time and can determine the start date. So it’s best to start this early.”
He recommends that prospective RIAs immediately hire an attorney to guide them through the transition process and prevent critical mistakes. Sonnen also suggests that prospective RIAs hire a marketing company to design a website that’s ready to go from day one, as well help them devise a logo and company name.
They’ll also need to engage an IT firm to set up lines for phones and computers and to handle cyber security. Deciding on the RIA infrastructure will inform the choice of custodian and technology.
3. Select a custodian that adds resources
Winn and Sonnen concur that it’s best to choose the custodian early on. That’s because teams of specialists at the custodian can bring a wealth of resources to bear upon the new RIA. They can help advisors assemble the right technology, provide compliance insights and ensure a smooth transition process.
As far as which major custodians to choose, “It’s not a tough choice because they are all good,” observes Winn.
The decision, then, may hinge on differences in pricing, which tech stack the advisor finds more user friendly, or the service model. Will, for instance, the advisor be calling an 800 number or will they have access to a dedicated support team?
4. Learn the ins and outs of your technology before you launch
“One of the attractions of the RIA model is that advisors can mix and match best-in-class software,” says Sonnen.
To achieve the best end result, you’ll need a performance reporting tool, a CRM, financial planning software as well as billing software. If you’re running money in a Rep-as-PM format, you’ll need a trading system as well.
“Make sure that you and your team know how to use your tech stack prior to launch,” advises Winn. “You’ll also need to customize it to meet your practice’s unique needs,” he says.
The pandemic has ushered in an ultra-remote environment, complete with more video calls, more e-signing and, inevitably, more stress.
5. Break down tasks into bite-size pieces
It takes a lot of time and effort required to start an RIA. This can be a real challenge, especially for an advisor who already has a demanding day job. Rather than view it as one big project and risk becoming overwhelmed, ”view it as a well-organized sequence of mini-projects," counsels Winn. That way you can focus on each step in its turn.
6. Get it done in four to six months
“Once you’ve decided to start your RIA, you want to get it launched as quickly as possible,” counsels Sonnen. It's hard to keep working at your wirehouse firm when you are planning to go independent. There are always more details to cover and if the project extends too long you may slip up and be discovered. He recommends that advisors aim to launch their new firm within a four-to-six-month time frame.
7. Set up firewalls to block premature leaks
Winn recounts how a team he’d worked with inadvertently shared information about their signed lease and new firm name on their work emails. He had to discuss next steps with them while on vacation in a boat from a scenic part of New England. The moral of the story: Make sure that vendors have only your personal email and save up all the work needed to establish your firm for after hours.
