Why are so many wirehouse and regional firm advisors being attracted to the flavor of independence in the RIA Space?
R-I-A: These three letters are dotted across industry publications and conference agendas, and on the minds of most advisors (especially post-DOL ruling), but why all the hype? And, why are we watching so many long tenured top advisors and teams moving in that direction?
By definition, an RIA – short for Registered Investment Advisor – is a fee-based, fiduciary advisor or firm regulated by the SEC. It’s an option for entrepreneurial-minded advisors who are looking for maximum freedom, flexibility and control along with the ability to build equity, create a legacy and build something in their own image. Today there are many versions of independence to choose from—from independent broker-dealer to quasi-independent models like HighTower Advisors and Steward Partners, to RIA hybrid options. But for those folks chafing at the limitations, bureaucracy and lack of creativity that working as an employee might mean, the RIA or RIA hybrid space may indeed become the favored option.
Looking at the RIA world through the eyes of a wirehouse advisor
Linda was starting to feel that where she was no longer served her or her clients best. A 22-year veteran of a major brokerage firm, she built an 85% fee-based, financial planning-centric business managing $300mm for high net worth families. While she credits her early success to her firm’s training program, sterling brand and robust resources, more recently she was feeling limited in how she was able to serve clients and grow her business. Outdated technology, an overly vigilant compliance culture, proprietary products and relatively low payout overshadowed what she once felt was “good” about the firm.
When she saw a top “corner office” team depart her branch to start a hybrid RIA she began to more seriously consider the RIA space. Familiar with the space only through news headlines, she wondered what the draw really was. Why would they leave behind the comfort and ease of being an employee at a leading financial institution? Why didn’t the team go to another well-known financial institution? Could there be a better opportunity to build her business and serve her clients elsewhere?
So she embarked upon a due diligence journey and here is what she found:
While Linda ultimately found the RIA space as the best home for her business, many of her colleagues (even the fee-based ones) will decide to stay put as they value the perceived stability, turnkey nature and backstop of a major firm. No matter which direction an advisor takes, they must be completely clear with themselves on their short- and long-term goals.
While independence may be attractive to some, the decision to go that route typically lies within just how entrepreneurial they want to be. Should one choose to head in that direction, the good news about the RIA space is that much of the heavy lifting that comes with a transition can be outsourced to service providers, consultants and attorneys, giving advisors the freedom, flexibility and control they’re looking for, along with the ability to focus on building the next phase of their business.