If you were to ask most financial advisors what drew them to the profession, they would likely cite three core intrinsic values – striving for purpose, being of service, and achieving autonomy. While these guiding principles standalone in designing an advisory practice, they can also come together to form a through-line toward legacy. The desire to make a lasting impact drives entrepreneurial short-term and long-term decision-making. It can also stall it, particularly when it comes to structuring their advisory business model.
Financial advisors weighing the pros and cons of starting one’s own practice versus partnering with a larger independent RIA firm run the risk of falling into an analysis loop. Endlessly evaluating the opportunities and challenges inherent in each business model coupled with the fear of the unknown can result in a failure to launch. Leaving a legacy becomes impossible when you can’t get out of the starting gate. That’s why financial advisors should honestly assess where they stand in terms of their career trajectory when listing the advantages and disadvantages of each business structure. Whether they’re a career changer, an advisor experiencing a growth plateau, or a seasoned advisor looking for succession solutions, there are compelling benefits and potential drawbacks of the independent and RIA-affiliated models. Moreover, building and preserving a legacy will greatly depend on which business model not only supports the advisor’s vision but also positions clients for sustained financial well-being.
Considerations for the Career Change
Making a career pivot can be exciting, especially when the new profession is rooted in entrepreneurial independence. For career changers drawn to financial advising, having and maintaining work enthusiasm are important, especially when measured against the complex realities of the industry. The intricacies of financial products, compliance regulation, and brand development can be daunting for experienced advisors. For financial professionals starting out, they can be paralyzing.
Established RIAs may provide advisor mentorship, continuous training, marketing materials, HR benefits, and a physical workspace enabling one to focus on client development and mitigate stressors. While autonomy might be surrendered within an RIA structure, the initial and ongoing support can be invaluable for career changers eager to establish themselves. Alternatively, some career changers may bring an extensive business ownership background to this profession making the transition to advisory entrepreneurship easier to negotiate. They may be less receptive to revenue share agreements commonplace between new financial advisors and RIA firms.
Options for the Growth Seeker
The struggle to scale a practice is real. Financial advisors cite exhausting their natural market, reaching time management and operational capacity, navigating compliance, and maintaining a technological competitive edge as growth hurdles. The path forward can feel like starting from scratch harkening back to the pros and cons of the career pivot. The independent-minded advisor may envision the road to expansion as being paved by complete control over brand identity and client servicing without fully grasping the upfront human capital and advertising investments needed to introduce themselves to new markets or to get reacquainted with an existing network.
Leveraging the “middle-office” resources of a larger RIA can alleviate administrative, portfolio management, technology, regulatory and marketing burdens, potentially boosting an advisor’s production by freeing up time for client service and business development. However, chargeback models, should they be in place for these services, may reduce the profit margin from increased earnings, requiring careful consideration of the cost-benefit analysis. Furthermore, advisors may become reliant on external support for core business functions, potentially hindering long-term independence aspirations. The choice depends on the advisor’s risk tolerance, desire for control, and vision for their future.
The Seasoned Advisor: Tucking In
Financial advisors spend their careers meticulously crafting retirement and succession plans to facilitate smooth transitions and preserve financial security for their clients. Yet, to truly solidify their legacy and ensure their clients receive uninterrupted service, advisors themselves must confront their own continuity plans. If a good portion of an advisor’s practice is rooted in joint work, they may intend to sell the remainder of their book of business to their partner advisor citing familiarity with clients and the overall stability of the independent firm. While this appears like a sound and straightforward approach, it’s important to determine whether the inheriting advisor has the infrastructure in place to manage an influx of client work on their own.
As experienced financial advisors near the career finish line, leveraging the “tuck-in” strategy – merging with a larger RIA firm – could be a compelling alternative. Tucking in allows for uninterrupted client care, now and for generations. Utilizing the resources and expertise of a larger firm can afford time for advisors to transfer their book of business and prepare their clients for the change with deliberate intentionality. While adapting to the new firm’s processes might require adjustments, the long-term benefits of a seamless transition and continued, high-quality service can be invaluable for both the advisor and their clientele.
Start with Values, End with Vision
By thoughtfully evaluating their career stage, risk tolerance, and vision for the future, financial advisors can make an informed business model decision that aligns with their values and strengthens their legacy. Going or remaining independent and affiliating with an RIA offer unique advantages; entrepreneurial freedom, shaping a brand voice, comprehensive support, access to cost-effective resources. The ideal choice hinges on the advisor’s vision for their practice, their commitment to client well-being, and their desire for lasting impact. Prioritizing these values in decision-making should inform an optimal path forward and keep advisors from getting ensnared in a dreaded analysis loop.
Contact Kelsey for a confidential conversation.
Author
Kelsey Althouse
VP of ADVISOR EXPERIENCE
PRINCIPAL
