The Fear of Change: A 3-Part Series for RIAs

As the RIA industry matures, consolidates, grows, and evolves, many of our clients contemplate M&A transactions, changing their technologies or workflows, or they may strive to break away from their current employer to build their own RIA.  We focus our attention on building and improving the operations and efficiencies of these firms, and often write practice management pieces to share our learnings and best practices.  However, we have yet to plunge into the emotions that are often involved in each of the above projects, and what recurring fears we find, regardless of the engagement at hand.  Our aim is to explain the impetus to the following fears, and how to prevent/calm these uncertainties:

  1. Fear of change in human capital
  2. Fear of giving up legacy processes
  3. Fear of the unknown

The Fear of Change, Part 3: The Emotions of Breaking Away

As captive advisors within the wirehouse channel begin to consider Independence, they seek information on the various models available to them and the strategies they should implement to transition client assets and set up their new RIA.  They’ll often speak with recruiters, industry consultants, custodians, various system vendors, and potential platform solution providers.  With each phone call they learn more perspectives and options on how to best escape their current firm and successfully transition their clients to the independent segment of the industry.  By the time we speak with the advisors whom end up as clients, they are generally very well-informed in the basic steps needed to become an RIA.

However, when we begin building out their new RIA and things begin to take shape, the fear sets in.  These advisors are often coming from an environment where most everything besides business development is handled for them.  Their office space, technology, HR, and compliance are all taken care of by the larger institution.  When these advisors realize that all of this is now their responsibility, the uncertainties loom.  Especially as their anticipated resignation/launch date nears, the anxiety they feel is palpable.  While our clients seeking independence come to us from all over the country, we find their fears and uncertainties are often universal.

  1. The fear of change in human capital

Unlike Part 1, where we discussed the fears the employees experience during an M&A transaction, or Part 2 where we delved into employees and advisors alike anticipating the repercussions of introducing new technology, the fears and responsibilities of breaking away are entirely on the shoulders of the advisors and are exacerbated by the fact that they have never been responsible for running a business before.

In order to effectively manage a business, breakaway advisors will need a hardworking and enthusiastic team to support their efforts and service their clients.  As most breakaway advisors work while still employed at a traditional wirehouse, they cannot share their intentions with any of their team at their current firm.  As these advisors develop their systems, think through processes, and figure out how to offer payroll, healthcare, and employee benefits, they begin to second-guess themselves.  Will their team join as employees of their future venture?  If they need to hire new employees, how and where will they find the right employees?

Luckily, there are many available resources to help advisors think through how best to build out future employee benefits and can prepare for all potential outcomes following the advisor’s resignation.  There are Professional Employer Organizations, or PEOs, that handle a company’s HR, payroll, benefits, and workers’ comp on an outsourced basis.  There are also brilliant employment sourcing firms that help find talent that fits both the described role as well as the cultural needs of the RIA.  Advisors should most importantly understand that the allure of the independent space is not only beneficial in their ability to truly own their business and serve their clients, but it is also beneficial for their employees who generally are better looked after at a smaller firm.

  1. The fear of giving up legacy processes

While exciting, the prospect of breaking away can also be terrifying once advisors realize the life and way of doing business that they have created for themselves will be forever changed once they resign and form their own RIA.  After all, they have built a stable, successful practice and likely live a comfortable life.  They understand that when they walk into their current office, their computer works, their printer has toner, and their clients trust them.  Will this new venture prove to be a success, and better than what they currently have?  Or a flop, and nightmare to manage and survive?

To alleviate these anxieties, they should remember that if their clients are loyal to the advisor relationship, all the rest will fall into place.  With the right guidance, they will have the appropriate systems integrated, will have greater freedom in what technology systems will make up their infrastructure, and will therefore have greater freedom in developing processes that better fit their business’ and clients’ needs.  With this newfound freedom, they will be able to grow and scale their business to meet the needs of a growing and ever-evolving sophisticated client base.

  1. The fear of the unknown

The humblest admission we’ll hear an advisor say as they’re contemplating the various pieces of their new business prior to breaking away is, “I don’t know what I don’t know.”  There are SO many pieces required and decisions to be made when building out a business that advisors often feel as if they’re drowning with the overwhelming amount of details to consider.

The best way to combat this fear is by leveraging available resources that will help assist and manage this process.  These partnered allies will be able to educate and guide advisors through this progression and – just like the advisors that have the clients’ best interest in mind – will lead advisors with their business’ best interest in mind.  Though the development of their new RIA might not always be a smooth process, advisors should take comfort in knowing that other advisors before them have built businesses from the ground up, and more advisors after them will continue to do the same.  On the other side of these breakaway fears and anxieties is an independent team of advisors and employees who inevitably will say, “Why on Earth didn’t we do this sooner?”

If you haven’t yet read Part 1 or Part 2 in this series, be sure to check them out.  To subscribe to our blog, click here.


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