I recently had the honor to participate in a BNY Mellon Pershing webcast titled, “Breaking Through – Navigating the Path to Independence.”  My fellow panelists were Pablo Bizjack of BNY Mellon Pershing and Brian Hamburger of MarketCounsel.  Our goal was to provide advisors actionable steps they could take as they contemplate a move from a wirehouse or IBD to establishing their own RIA.  Brian handled the legal considerations and I discussed the operational issues that come with establishing a business.  An interesting question we received from the audience during the presentation was, “Has today’s remote office environment meant more advisors can become independent faster, or is it in fact more difficult?”

At PFI Advisors, we typically break down the tasks needed to establish an RIA into four broad categories:

  1. Office Infrastructure
  2. RIA Infrastructure
  3. Client Transition
  4. Billing Set Up 

Office Infrastructure includes all items any business would need to get off the ground: office space, computers, phones, furniture, E&O insurance, employee health plans, etc.  RIA Infrastructure includes the tools specific to our industry: custodian, reporting provider, CRM, financial planning, trading/rebalancing, etc.  Client Transition consists of the planning involved and actions an advisor can take — depending on their current employment status and rules associated with their specific employer –- with regard to client outreach once the RIA is launched and how best to transition client assets as quickly and efficiently as possible.  Billing Set Up is ironically something that is often overlooked – once the clients have been transitioned, someone needs to assign fee rates to every new account number that has been established at the RIA to ensure the new business will, in fact, have revenue.

During the webcast, I mentioned that coordinating these activities could in fact be made easier with advisors working from home and not sitting in a branch office with management watching their every move.  Advisors have the ability to schedule calls with custodians or reporting providers, or work on the 401(k) plan that needs to be established for the new firm.  Brian Hamburger, however, raised a very good point: while an advisor can be conducting these planning activities throughout their day, that does not necessarily mean they should.  Working from home or not, Brian said, while the advisor is still employed, they have a duty to their current employer to be conducting business on behalf of that employer, and in the employer’s best interest.

That led our conversation to a topic that I have always found critical to the success of advisors on the path to independence: the need for a project manager, and if possible, a project manager who is not employed at your current firm.  Advisors looking to establish an RIA are signing up for two jobs during the planning process: during the day they are running an extremely successful advisory business under the umbrella of their current employer – but advisors are now taking on a second job of establishing a new business in their “free time.”  A project manager can coordinate all of the planning tasks into weekly action items and can conduct phone calls with all of the various vendors throughout the week, while the advisor is focused on clients and prospects, and report back: “This is where we are on the office lease, this is where we are with regard to health benefits, this is the latest with the custodian, etc.”  The project manager can meet with the advisor once or twice a week, get decisions and action items from the advisor, and then run with them throughout the week on their behalf.  Even in a work from home environment, duty to employer issues aside, the advisor may not have time to conduct these calls themselves.

The follow-up question from the audience was, “If we are all working from home anyway, can I skip the office set up and launch my business from my living room, thus cutting down the planning process and the lead time needed to establish an RIA?”  To this question, we had a similar answer: while you can launch the firm from your kitchen table, it does not necessarily mean you should. 

When an advisor resigns and launches their RIA, it is expected that the former employer is going to reach out to clients and share the benefits the client would receive should they choose to remain at the firm and not follow the advisor to the new RIA.  They never want to attack the character of the advisor (they’ve been employing them for a number of years), but they will say, “(Bob) is a fantastic advisor that has taken care of you and your family, but he/she has never been a business owner before – it sounds very risky to me if you follow him/her.  They are going to spend so much time trying to get their phones and photocopier working, they will not be focused on you the way they have been in the past, when they had our firm providing infrastructure to them…”

To combat this messaging, it is imperative that advisors present their RIA in the most professional light possible.  Saying, “I’m launching my own firm, and I plan to work from my bedroom,” even with stay-at-home measures in place, will not instill confidence in the client to entrust their life savings to the new firm.  As Brian Hamburger stated on the webcast, “You have to be ready for a world after this pandemic” – the advisor should be prepared to walk clients through their plans for moving into permanent office space once we reach “the new normal,” business cards and website should be presented to clients, and the key message for clients should be, “It will be exactly as it was before, only better!” 

Advisors must convey to clients that by transitioning their accounts to the RIA channel, they will have a broader spectrum of products and services available to them, oftentimes at lower internal costs.  The RIA channel has been so successful over the past decade-plus, there are more institutional-caliber solutions to clients’ complicated and ever-changing needs.  Global pandemic or not, it has never been easier for advisors to provide these services and launch their RIA than ever before.

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