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In the movie series The Matrix, there’s a scene where characters have a vast selection of doors in a long white hallway. Entering a door allows them to jump to any other place within the Matrix, instantly.
As a financial advisor looking to jump to independence as an RIA, you have a set of doors before you as well. Your choices, however, aren’t found in an endless hallway with limitless possibilities. You have two doors that lead to independence.
Behind one of the doors, you can build a new RIA. Behind the other, you can join an existing one.
Which should you choose?
The path to becoming an RIA for breakaway advisors
Building an RIA or joining one is a huge career decision, and it’s not one that any advisor should approach without due diligence and taking a variety of viewpoints under consideration.
You can go to an institutional custodial platform as a breakaway advisor to get support toward building your own firm so you can own and control everything you do, plus create enterprise value.
However, there’s a second path – one that’s perfect for advisors who want to pursue the RIA path and enjoy more freedom with clients, but without the burden of owning everything that comes with a business.
Whichever way you go, breaking away untaps much more significant value in your client relationships than staying in a captive environment.
With that said, I’ll lay out the full pros and cons for building or joining to help you think about which decision is right for you.
The pros and cons of building an RIA
The pros
This side of the list is simple: You’re in control.
You get to pick your institutional partners, technology, fee structure, and how you service clients. How you market and communicate is in your hands – as is your company name, colors, and entire brand image.
If you want to be at the head of the whole thing, you don’t need to know anything else.
The cons
Even if you want to be in control, you have to go into the situation with clear eyes. There are several distractions – from technology to compliance and more – that you’ll have as a business owner that may take your attention away from clients and require your eyes on your business instead.
Two other cons to be aware of relate to your clients and bargaining power. If you were previously employed by a big-name wirehouse, clients may be hesitant to join your untested new firm.
And depending on how many assets you intend to bring with you, you may have little to no leverage with institutional partners and find it difficult at first to find the dedicated support you’d like to receive.
The pros and cons of joining an RIA
The pros
Joining an existing RIA is the path of least resistance to independence and doesn’t require the same amount or weight of decision-making that building an RIA does. There’s no technology to select, no operational processes to create – they’re typically done and ready for you to plug into.
From a client-retention perspective, it may be easier to convince clients to join you at an established firm rather than a brand-new startup. And especially if you join a larger RIA, that firm may already receive preferential pricing that ultimately benefits your clients.
The income you can receive, a question relevant to many if not most advisors, can also be comparable to joining an existing firm as opposed to building your own and being responsible for the many expenses of running a business.
The cons
While the setup is done for you, you also can’t typically change what’s been done, so you have to take it or leave it. As part of that, you likely will have to adjust the way you do business to fit your new company’s existing structure.
You don’t get to choose your technology, nor do you have a say in firm decisions because you won’t be an owner.
And because you aren’t an owner, you also aren’t building equity in the business (unless the firm offers it to you to join, of course).
Making the right decision
There are two doors, and most advisors will only open one in their lifetime. Sure, there may be some who go through one door, then come back to the hallway to try the other, but that’s rare.
To make the right choice of joining or forming an RIA, you need to have discussions with those close to you and do self-analysis to identify what’s most important. If you don’t have that driving entrepreneurial spirit and belief in yourself, joining an existing RIA will be the better decision than building on your own.
Only you can make the right choice. Whichever it is, be sure that part of your decision-making process includes thinking about what will serve your clients best. As their fiduciary advisor, they deserve that from you.
Ryan Shanks is co-founder and CEO of FA Match, a Longmeadow, Massachusetts-based recruitment platform for advisors.
Read more articles by Ryan Shanks
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
