An advisor makes the momentous decision to break away from their wirehouse or regional broker-dealer. Now comes an almost-as-big but perhaps even tricker choice:
For the many advisors who face this choice each year, signing on with an established RIA presents clear advantages. They get to start their own business without having to sweat the details of forming a new business entity or figuring out the right technology stack and phone system.
Someone else gets to worry about the minutiae of compliance and whether the employee benefit package is up to snuff. They can bolt onto a firm with an existing array of services while giving themselves a hefty boost in payout.
But are tuck-ins for everyone? Here are some elements to consider to arrive at the best answer for you.
Pros and cons
Chris Winn, founder and CEO of AdvisorAssist, a consulting firm for RIAs, recommends advisors do a cost-benefit analysis in deciding whether to join an RIA.
“What are you getting in exchange for the share in your revenue? Is the firm’s offering more advantageous than sourcing partners directly?” he asks.
If, for example, you’re on a reduced payout but the firm is providing you with a tech stack, sales support and is handling your compliance — is it worth it? How much would it cost to provide these services yourself?
Where do you want to spend your time?
The decision to start your own RIA or join another hinges upon whether an advisor is aiming to build a business or a practice, says Winn. The answer will determine where you choose to spend your time.
Evaluate whether you want to focus your time on building the infrastructure of your new firm. Some advisors want to be involved in selecting the tech stack and other operational components of their firms. Others view these decisions as tedious, unproductive distractions — the equivalent of getting a root canal.
Winn says to consider whether the firm’s structure complements your strengths and whether there are any duplications in services.
Tuck and cover
For breakaways who aren’t immediately ready to go fully independent, tuck-ins can offer a convenient way station. Many larger RIAs have dedicated transition teams that make the switch from the wirehouse fairly painless. “The easier that they make it to leave, the more compelling it is to join,” says Winn. RIAs that make it painless for advisors to transition out of a firm have the tools to help them grow in the future.
An advisor can always launch their own enterprise at a later date. But that also means, says Winn, that advisors who sign on with another RIA need to have an ironclad written agreement that certifies their ownership of all their current and future accounts and that states they are empowered by the RIA to transport them elsewhere with its assistance. If a firm wants to lock up an advisor contractually, Winn warns, it’s evidence of some underlying weaknesses.
Room to grow
Those going the tuck-in route should look for an RIA partner based upon the potential for growth, says Matt Sonnen, founder and CEO at PFI Advisors.
“Does the RIA have the resources to recreate the services that advisors have been receiving at their current firm?” asks Sonnen. And, going a step further, “Do they have access to services that the advisor team has not had access to before?”
For example, tax preparation, bill-paying capabilities or the ready availability of a dedicated financial planning team could enable advisors to snag more client wallet share.
Alternatively, Sonnen says that sometimes two groups of advisors can partner up with the goal of achieving something bigger. He says he’s seen advisors with an institutional focus combine with advisors with high net worth orientation, allowing all parties to offer clients an expanded menu of services.
Cultivate larger accounts
Signing on with a bigger firm, says Sonnen, could also lead to landing bigger clients on the theory that a $25 million AUM client, for example, might feel more at home in a $2 billion firm than at a $500 million one.
It can also be beneficial to tuck into an RIA whose target client profiles align with your own, says Sonnen, and who have compatible technology, reporting and client service models as well.
Do your homework
Despite the appealing aspects of these arrangements, careful due diligence is required before finalizing the move.
“We see a lot of quickie weddings
