September 21, 2021 | Shoestring RIA
Once you decide to go down the path of entrepreneurship, while rewarding in many aspects, it is still a psychologically draining experience. At least when you are part of a large corporation, the pressure and anxiety is well known and there are support mechanisms to help as you move up the corporate ladder.
This support ecosystem is not available to entrepreneurs. In fact, it is the complete opposite. Our culture idolizes successful entrepreneurs and they are expected to downplay their struggles to show their strength and inspire the next wave of startups. Every entrepreneur has to weigh the pros and cons of his or her decision every day as they struggle to move their business forward.
Some of the cons for an advisor starting their own RIA include giving up the corporate brand, having to setup your own office, hire staff, develop operational procedures, and handle your own compliance and marketing. Your choice of tech stack is also a critical component with a wide range of options from the free custodian software to expensive high-end applications.
These tasks can seem overwhelming and the costs can be considerable and ongoing for rent, utilities, software, research, and staff salaries and benefits. We would suggest putting together a detailed plan to keep expenses under control.
On the plus side, there are tremendous benefits that can entice an advisor to take the plunge of independence including being your own boss, setting up your office closer to home or even in your home, selecting your own technology and increased income from not having to split revenue with the broker-dealer.
When breaking away, there are a plethora of choices around the legal and regulatory setup. You could start a solo practice, or join an existing independent firm, or build your own enterprise. You can practice as a dual registrant who combines both commission- and fee-based business. Or, if you want to focus on financial planning, you can become a fee-only advisor under a partner firm’s corporate RIA or your own. Of course, as your business evolves, you can adjust your approach accordingly.
These are just some of the decisions you’ll get to make. Consider also that you’ll be able to choose your support staff, technology platforms, marketing budget, and more. No approvals from the bureaucracy required.
Debunking the Myths of Being an Independent RIA
Gathering as much data as you can about going independent will help guide your decision. It will also help you discern facts from myths about starting your own RIA.
TD Ameritrade published a guide on The Myths and Realities of Becoming an RIA that included a number of popular misconceptions that advisors have about going independent:
Launching your own RIA can be one of the greatest tests of resilience that you will ever endure. From setting up your own office, hiring staff, choosing technology, and rebuilding your client book, your journey will have bumps in the road and hopefully a pot of gold at the end of the rainbow.
The psychological toughness needed to be an independent RIA can’t be taught. It has to be lived. Only those advisors who are deeply passionate about the challenges they want to solve, combined with a personal desire to help clients reach their financial and life goals, will persevere and truly make an impact on the world.
The Shoestring RIA is a series of articles written and published by the BillFinTM team at Redi2 Technologies designed to help RIAs as they start out on their own. We recognize just how challenging it is to venture out and build a successful business. Our articles will be focused on helping these new businesses with a wide range of topics.