September 07, 2021 | Shoestring RIA
“Avoid the crowd. Think independently. Be the chess player, not the chess piece.”
— Ralph Charell, author of How To Get the Upper Hand
For financial advisors thinking about starting their own RIA, it’s important to realize that success requires an entrepreneurial mindset. Every day out on your own can feel like you’re fighting an uphill battle, but this is part of the entrepreneurial spirit.
Leaving your day job for the independent RIA world can be like jumping into the deep end of the pool without knowing how to swim. Just like learning the basic strokes can help you avoid drowning, learning the basic strategies for launching an independent RIA will help avoid crashing and burning within the first year of the life of your business.
In spite of all the pain and suffering, more than 90% of financial advisors said they have no regrets about starting their own RIAs and would make the same decision over again, according to a survey by Schwab Advisor Services.
While 94% of the poll takers said becoming an RIA was driven by a desire to do what’s right for their clients, 73% signaled it was to build better, longer lasting relationships with customers.
In this article, we’ll discuss the psychology of successful entrepreneurs. In the next article we will discuss some of the pros and cons of going independent, then debunk some of the myths of being an independent RIA.
The Psychology of Successful Entrepreneurs
Now that we know how much overlap there is between running an RIA and being an entrepreneur, it’s possible to leverage both positive and negative energy to drive your business forward and stay motivated. Which one you prefer depends on your personality, but they both can be effective.
“Entrepreneurship is the ultimate exercise in developing the attributes that we know from positive psychology to be essential to having a good life: self-competence, optimism, engagement, and resilience.” — Psychology Today
Starting your own business can make you happy! Well, not exactly. But it is true that building and running your own business requires learning and mastering many skills that help develop mental toughness and flexibility that can make it easier to deal with other parts of your life.
It’s more than just thinking happy thoughts. It’s the positive psychological boost from entrepreneurial activity that can deliver mental benefits such as feeling that you matter, that what you do has meaning, and believing in your ability to accomplish things. Psychologists sometimes call this ‘self-efficacy’. When you feel this way, you also feel more optimistic and hopeful which makes you more willing to take risks and try other new things, according to psychologist Dr. Pamela Rutledge.
On the other hand, being an entrepreneur isn’t a walk in the park considering the 80-hour weeks, gut-wrenching decisions, and intense desire for success that’s required to succeed. “You have to walk around with a chip on your shoulder,” says Jeremy Andrus, longtime CEO of headphone maker Skullcandy. “You need to have something to work for, like you’re an underdog.” This means remembering every rejection from everyone who said you would fail and using it as fuel for your desire to prove them all wrong.
The desire for revenge on those that doubted you can be a powerful driver for an entrepreneur. Steve Jobs was fired by the board of the company he founded, Apple Computer, in 1985. Real estate entrepreneur Barbara Corcoran, of Shark Tank fame, decided to split from her business partner and boyfriend at the time, who warned her, “You know, you’ll never succeed without me.” She later sold her part of the business, renamed The Corcoran Group, for $66 million.
Many entrepreneurs are “afraid of failing, but they’re even more afraid of failing to try,” writes Adam Grant, professor of psychology at the University of Pennsylvania’s Wharton School.
Ultimately, you’ll have to look to your heart to decide if you want to be a business owner or not. While the path of entrepreneurship is difficult, for financial advisors, it is even more challenging due to the legal and regulatory requirements.
In the next article, we will discuss the pros and cons of going independent and debunk the myths of becoming an RIA.
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.