So, you are working in a wirehouse now, how does independence look for you if you launch your own RIA?
What if you want to be independent, but have zero interest in actually operating a company? Contrary to what you have been told, entrepreneurial genes are not required to become an independent advisor. Far from it, as more and more advisors are seeking the “Tuck-in” or “Join” avenue to independence. The industry has failed advisors by focusing on their own interests and not those of the advisor.
If the notion of starting a business frightens you, then don’t panic. There are plenty of alternative routes to independence. My point is that you can become independent if you want to. You no longer need to fear the startup scenario.
In order to make a decision like this, you must first be educated about the landscape. We will start with the join scenario. If you are doing $150K to $500K, your best option is to join another office that is already independent. The percentage of your business that is fee vs. commission will determine whether you join an independent broker dealer group, an RIA group or a blend of the two, often referred to as a Hybrid office. At this level of production, your payout range can vary depending on total revenue and the type of business you do. No matter what, you will be looking at an increase in payout. I have seen wire-house advisors make this move and double their income. If you are negotiating your own deal, keep this in mind. My advice is to hire a professional who knows this landscape and can coach you through the process. Also, remember, when you join an office or group; you get to leave the responsibility of running the day-to-day operation to them. How sweet is that? You get a raise and get to focus 100% of your attention on your clients.
If doing more than $500K in revenue, then you can compare the above options against starting your own company. If starting your own firm, bear in mind that your gross payout at this level will average 90% with an independent broker dealer. If you setup your own RIA and are fee-only, then your gross payout will be 100%. As a Hybrid at this level, the payout for your fee business can range between 95 – 100% and your broker dealer payout can range between 80% and 95%. Again, hire a 3rd party to help you with this process. You don’t have the knowledge to understand when you are getting a fair deal or not.
If starting your own company, let’s back out your cost of doing business. If you have an office space and one staff member, you could operate at or below 40% of your gross revenue. That leaves you with 50% for IBD and 60% for RIA. This means you could pay yourself $250K after covering all of your overhead expenses. Not bad, considering you now own your company and have total control over how you service your clients. That’s pretty cool, right?
Ask yourself, “Do I Believe In Myself And My Clients,” “Am I Handicapped With My Current Firm,” “Can I Do It Better On My Own?” If the answer is yes, then welcome to independence. This quote comes to mind: “Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails.”