RIA or IAR for New Financial Planner

[Nancy]

Which do you think would be the most profitable way for a new planner to start his or her career?  Would being a solo Registered Investment Advisor or joining an independent firm as an Invest Advisor Representative provide the best opportunity for a planner just starting out?  Why?

[FuturePerfect]

I have the same questions.  Can anyone with experience answer the questions?  Thanks in advance.

[Mark]

The questions to ask your self are:  Have you ever been self employed?  Are you a entrepreneur type person?  Are you willing to do the hard work to set up your own RIA or would you prefer to fit-in under some one else umbrella?  

Best WIshes... Mark

[Anna]

If you are completely new to the field with only a bunch of book-learning to your credit, profitability is not the main factor for you.  The most important thing would be to find a mentor that is going to take you in, show you the ropes, slowly provide exposure to different clients, different situations, different market environments and all the knowledge it takes to run a practice so that you gain the practical experience to go out on your own as either a solo RIA or just a full-fledged investment advisor in that firm. 

When I decided to become a financial planner, I thought I'd get my masters, take my CFP exams and hang out my sign.  I happened to fall into an "internship" with a small, independent firm while in school and stayed there for four years, becoming a staff planner, chief compliance officer and gaining insight into actually running the business.  Looking back, I would have never been able to make decisions about software, custodians, compliance, investment allocations, how to phrase what you say to clients, and on and on and on, without someone with years of experience to mentor me.  I put my time in, learned everything I could and my individual circumstances led me to start a solo RIA.  And I know I am successful now only because I had someone to teach me from the outset.

[Stephen Winks]

The differences between an RIA and an IAR put you on two entirely different career paths. An RIA treats advice as a prudent process the advisor manages which can be held to a fiduciary standard of care based on objective criteria of statute, case law, regulatory opinion letters with an audit path to best practices, process, procedure, work flow and task so it is scalable and manageable as a business enterprise. An IAR treats advice as a product they sell in which the advisor can not be held to a fiduciary standard of care. The advice product vendor is indeed acting in a fiduciary capacity as a money manager, but it is not possible for the advisor to (1) address and manage a broad range of investment and administrative values required by each individual client (implicitely requiring customization for each client) or (2) to control the investment (vehicles)considerations being advanced, or (3) to control cost or investment performance or any number of duties entailed in fulfilling ones fiduciary obligations. The IAR is in essence a broker.  Thus in the abstract, the RIA is a far superior delivery platform than a IAR. Yet the RIA must exercise judgement in a broad range of areas in which most advisors have little or no expert technical proficiency entailing process, technology, functional division of labor and statutory documentation. Thus from the advisors perspective, providing advisory services support for RIAs is terribly important. Yet not one major brokerage firm or independent broker/dealer supports fiduciary counsel (it is a violation of internal compliance protocol) based on objective criteria with an audit path to prove it. The custodians will not provide the necessary support for advice as they feel as vendors they can't be prescriptive as to how the advisor does business as they may incur fiduciary liability. Thus it is up to each RIA to create their own support as best they can which is by definition not scalable and very unlikely to hold up to objective fiduciary criteria required to deliver the continuous comprehensive counsel mandated by statue. Unfortunately, there is no safe business environment in which advisors can work, acknowledge their fiduciary status and act in the client's best interest. There is no large scale institutionalized support for fiduciary counsel that makes it easy for the advisor to execute an here-to-fore unprecedented level of investment and administrative counsel. Thus most advisors have no choice but to be a IAR. This is why the industry is not only losing the faith and trust of the investing public, but is losing the faith and trust of the advisor. Is anyone responsibly acting in the advisors best interest? Is the role of the advisor just to make investors aware of their investment options with no advice being offered, implied or rendered. In the industry's efforts to absolve themselves of any responsibilities, no advice is being provided and the consumer is required to serve as their own counsel. No one wants to say the obvious--the role of the advisor as simply providing trade execution services--which is becomming a commody. There is no support for advice. The consumer readily understands if the advisor is to add value they must provide advice and acknowledge they are acting in a fiduciary capacity--essentially act as an RIA. To the industry this is disruptive as it goes beyond trade execution services an a product distribution organizational structure. But the consumer doesn't care how different or complex advice is, they just want to be able to rely upon the advice they receive. Presently, no one is acknowledging advice is being provided. Thus the conundrum, to achieve scale in creating a safe business environment in which RIAs can work a new type of firm must emerge which treates transactions cost as a cost center not a profit center (brokerage firm). It must offer the enabling processes, technology, functional division of labor and statutory documentation necessary to make it easy for advisors to execute advice/fiduciary counsel at the advisor level. This sort of firm does not presently exist yet the necessary processes, technology, functional division of labor and statutory documentation does. All that is needed is YOU the advisor. Demand it. If you want to literally be an advisor, to unambiguously act in the client's best interest (and you can prove it), to provide an unprecedented level of investment and administrative counsel, achieve professional standing it is within your reach. Just ask for it. When I talk to your supporting firm (broker/dealer or custodian) they don't get it. They don't understand how important this is. They will if you ask for it. I can show you and your firm how.

Stephen C Winks, Advisory Practice Services

[medrep]

I am preparing to leave my broker dealer affiliation and join an established RIA firm.  I am somewhat nervous about the change only because it doesn't seem to have the tethers associated with a large BD relationship but I see a different business model that is very appealing. What questions would you recommend me to ask my future business partner as I consider the change. Thanks.

[Zek, The Grand Nagus]

What's the procedure for getting out of your RIA, in the event things go bad?

Ron