Financial Planning Magazine recently reached out and asked us to contribute to their “30 Days 30 Ways” series detailing Advisors in Transition. We wrote the following piece to educate advisors on where to start when transitioning to independence…
The breakaway movement continues to gain momentum as captive advisers within the wirehouse community desire more control over the products and services that they offer, better technology both for them and their clients, succession planning solutions and escape from the dreaded and ever-changing payout grid.
Many advisers allow fear of the unknown to stop them from starting their own registered investment adviser, and some simply don’t know where to begin.
Here are the four bare necessities to consider when building a firm.
1. Location, location, location. Before advisers can hang their own shingles, they need to find somewhere to hang it.
Unfortunately, many advisers get caught up in trying to build the Taj Majal, thinking that their office space needs to attract and cater to high-net-worth clients. Although clients want to feel as if a new firm is equipped to provide high-end services, they are also judging how and on what the firm is spending money.
Class A real estate is a given, but lobby waterfalls and rotating ice sculptures should probably be avoided.
2. Overcome the brainwashing. Wirehouse advisers have been told for years by their branch managers that they won’t have access to investments, research, technology or any sophisticated solutions for clients if they go independent. In reality, however, nothing could be further from the truth.
At RIAs, advisers are the business owners and get to make the decisions that provide them and their clients with a better experience and outcome. Investment decisions are no longer driven by profit margins and cross-selling capabilities.
Advisers need to dedicate the time to learn about the various resources available to them in the independent channel, from technology solutions to investment access. They are out there.
3. This isn’t a paperless industry … yet. Despite a lot of talk about e-signature capabilities, the fact is that most accounts won’t transfer to the major custodians without ink on paper. Advisers need to prepare themselves and their teams for more paperwork than they have ever seen.
Not only will each account within a household require documentation, but every feature on every account, from check writing to periodic distributions to margin approval, will require a client signature. It is a small price to pay for building a transparent, client-centric environment, but advisers must have a plan for processing countless forms in an efficient manner.
4. Advisers shouldn’t forget to get paid for their efforts. Advisers tend to celebrate a successful transition to Independence by saying, “90%-plus of our clients have joined our new firm!” But when asked how they get paid, advisers will stare blankly into the abyss.
As part of the paperwork process, advisers can’t forget to get client agreements signed. A plan needs to be in place to upload that data into the RIA’s billing software and work with the custodian(s) to debit client accounts on a quarterly basis.
With office space secured, technology and investment access in place, clients transferred in a timely fashion, and billing processes established, breakaway advisers will be on their way to building the RIA and culture of their dreams.
Matt Sonnen is the founder and chief executive of PFI Advisors in El Segundo, Calif.
This story is part of a 30-30 series on transitions.
This article originally appeared on Financial Planning.