Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
Here’s a fun little experiment to try. Walk into a barber shop (or salon) and ask if you need a haircut.
Any guesses what the response will be? Every. Single. Time!
Or, to use an example in our industry, ask a mid-cap mutual fund manager (or whatever flavor works for you) if now is a good time to have mid-cap exposure in your clients’ portfolios.
We both know what their answer would be!
Ask someone a question in which the respondent has a vested interest in how it is answered, and you know what the answer is before asking it.
I see this when I am talking to advisors about the RIA model.
There are many misconceptions about how the model works. In most cases, it is because until you take the time to learn more about how it works, there are plenty of forces to lead you astray.
I am often asked questions about whether:
- I must pay for my own compliance.
- I must pay for my own (expensive) health insurance.
- I won’t have the level of support I am used to having.
- The technology won’t be as good.
- I won’t have access to as many investment products to use with my clients.
- I need a big-name brand on my business card to attract clients.
And yet, in most cases, guess where the advisor got these less-than-fully-informed impressions? By talking to someone at their broker dealer!
Consider that at most traditional broker-dealer firms, the branch manager is, in part, directly compensated based on the production within their branch. Above them, there is a layer of complex managers, division directors, regional directors, etc., again, all in part compensated by the production within their respective territories. If you, as an advisor, fall anywhere in the chain underneath one of those folks, it will negatively impact their compensation if you depart.
Further, unless those individuals were ever intimately involved with the RIA model, they will not have the necessary familiarity to be providing accurate guidance, even if well-intended.
If such folks are your sole sounding board for whether you should transition your practice to the RIA model they will have biases in their answers. This applies to talking to these folks if currently underneath them or considering a firm to begin with and hearing their feedback on why you should choose their firm/model over something else.
There are some amazing branch managers, complex managers, etc., in our industry. Several of them I consider friends. I am not demeaning any of them individually or the positions they hold. But when their compensation is directly aligned to what path you take with your own practice, and their own familiarity is lacking, they naturally are biased in how they explain things to you.
But Brad, aren’t you biased towards the RIA model?
Absolutely! After all, my firm is called “Transition To RIA.”
I unapologetically believe the RIA model will continue to be the future of our industry. There is no model that provides better economics and more flexibility for you as an advisor than the RIA model.
Look at the industry trends over the past few years and the forward-looking projections. When was the last time you saw a news story about an RIA advisor transitioning to a wirehouse-type firm? There is a reason for that. The river only runs in one direction, and the current is gaining speed each passing day.
Can you tell I am biased?
I am the expert on the RIA model and can teach you everything you want to know about how it works and how to transition your practice to it. But I am also confident enough to tell you to seek guidance elsewhere for options outside of my area of expertise that you might want to compare it against.
When considering a future path for your practice, a decision of enormous magnitude, you cannot rely on a single source of information to help you consider your options.
If you do so, you rely on, as the saying goes, a jack of all trades but a master of none. Or you are working with a specialized expert who will be an important resource to help you understand their area of expertise, but who is also biased regarding other models.
Instead, consider which paths you are interested in exploring and seek the experts on each.
If you are considering either staying at your current firm or going to a different model, you already have the requisite expertise needed for the former. For the latter, you need respective experts to guide you accordingly.
Everyone has inherent biases, perhaps driven by compensation, emotions, or just sheer familiarity (or lack thereof.) Accept that those biases exist, make sure you are talking to specialized experts about each path you are considering, and be confident in knowing you will be making an informed decision about what is best for you, your practice, and your clients.
I am not suggesting you should not get a haircut. But who you ask about it is important.
Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.
Read more articles by Brad Wales
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
