While advisors have a real opportunity to build the advisory business of their dreams in the RIA space, it’s the clients who stand to gain the most
The conversations around movement to the independent space often center around the “big picture”: The opportunity for an advisor to get out from under the auspices of a larger firm to build an enterprise and legacy based on his own vision and terms.
When talking about the independent space, the focus is typically on the benefits for advisors; the added freedom, flexibility and control, and ability to build an enterprise notwithstanding. Yet while the benefits to entrepreneurial advisors – especially those considering the RIA path – are quite clear, there’s another beneficiary to consider: The clients.
What are the client-side advantages of a move to an RIA?
For advisors willing to do the heavy lifting of building their own practice, joining an existing RIA, or going some version of supported or quasi-independence, the independent space offers demonstrable advantages to both advisors and clients alike. Consider the following:
RIAs are held to a fiduciary standard; to do what’s best for their clients. Because there are no platform restrictions, advisors can shop “The Street” for best-in-class products, services and pricing in all categories, such as banking and lending, or access to managers, which translates into more optionality and thus greater value for clients.
Regardless of how “lean” an employee advisor runs his business, the take-home economy is determined by two factors: revenue generated and length of service. RIA principals, however, only pay for the essential goods and services they consume, and are compensated from the free cash flow of their businesses—which can translate into a cost savings passed on to clients. And because independent advisors control their fees, clients are typically charged on services they utilize—a billing process that is far more transparent and client friendly.
RIAs can customize the client experience—especially important for advisors working with high net worth and ultra-high net worth families. Principals can build a bespoke firm, designed to provide best-in-class service to their clients. As long as the firm remains compliant with applicable laws, they have free rein to service clients and maintain outside business activities as they see fit, allowing advisors to offer customized holistic advice, including tax and estate and insurance planning, loan management and even the ability to invest alongside clients in direct private deals.
Access to state-of-the-art, integrated technology options in the RIA space allows advisors to create far more sophisticated and customized client reports, financial plans and client portals. An RIA can also turn to the most innovative and efficient technologies on the market (i.e., CRM, reporting and trading) instead of relying upon a clunky and proprietary technology stack, allowing clients to have a clearer understanding of their accounts and full financial picture.
Advisory teams that service HNW and UHNW clients are often frustrated by compliance restrictions that arise when firms manage to the lowest common denominator. Eliminating bureaucracy helps improve efficiency, resulting in an enhanced client service experience. This type of client service environment can allow firms to segment their client base and offer “white glove service.” Without account minimums, the advisor can provide a more streamlined service to emerging HNW relationships.
Independent advisors can build their own brand, rather than the brand defined by their employing firm. They are also allowed to use social media to communicate with their clients, without the oversight of their firm. This opens up the lines of communications with clients and allows them to offer information that is based on relevancy rather than generic mass marketing defined by the firm.
The fact remains that independence isn’t right for every advisor, and that’s ok. But for entrepreneurial advisors who want to build an enduring legacy , that legacy has great potential for providing positive outcomes for clients as well. And isn’t that what being a fiduciary is all about?