More Progress, but Still, RIA or B/D?
This week on the Road I saw more progress. My RIA is now approved by the state and I can accept financial planning fees. I have two financial planning clients to begin with. One is an executive with a large corporation and the other is a young professional with a very successful practice in the medical field.
I am still looking for a place to hold the assets. I have been leaning toward the RIA platform – which seems to be a trend – but am unsure at this point. While an RIA offers more control and a higher payout (100% versus 90% +/-), it will require more work and cost to set up. Is the extra cost worth the additional 10% payout? If the production is large enough…certainly!
I think of it this way: It’s as if the RIA arrangement provides a storefront and it’s up to me to determine what to put on the shelves. For instance, if I want to offer insurance products, should I secure a general agent contract with each company I want to do business with or find a “one-stop shop” and run all insurance business through them? I think the latter would be more efficient but would love to hear your comments.
Let’s get back to the asset management decision.
I’ve had plenty of experience with broker/dealers over the years, some good and some frustrating. Since I plan to write and accept speaking engagements, I am concerned that B/D compliance could be an impediment to this. Do any of you have experience with this as it relates to your writing, speaking, radio programs, etc.? It seems that the increased scrutiny surrounding B/Ds over the past several years is simply a result of the scandals that have occurred. In the future, as the RIA channel grows, the pendulum could swing and the RIAs could experience something similar. Another factor in this decision is the type of client I am seeking. Generally speaking, it has been my experience that wealthier clients are more accepting of fee-based asset management than less wealthy clients. It seems that one of the biggest advantages a B/D has is the ability to offer commission-based products. Yet if I am managing larger accounts, the commission products may not be such a significant factor.
As I ponder this decision, I think back to the corporate environment I left, where these decisions have already been made. As an independent those decisions fall on me. So what to do? Hmmmm….. To borrow a phrase originated by Archimedes, the philosopher and math expert, as he ran into the streets–Eureka! I think as a result of arguing the pros and cons in writing, I’ve just made my decision.
Perhaps you’d consider telling your associates about this blog and making this a forum for those who desire to go—or are already in the process of going—independent. For those of you from the home office who want to recruit me to your B/D, I appreciate the interest, but maybe you should e-mail instead of using the blog comments—let’s reserve this forum for practitioners.
Again, thanks for your indulgence and I welcome any comments you may have.
Mike, I started out when I was 18 working with an independent B/D, now 13 years later I’ve changed B/D’s a few times and have one I love. Yet, I like you still ponder the same questions about moving to the RIA route. What I’ve done is try to do a cost analysis on the 10% spread you are talking about and then determine at what point is it better to be an RIA. From my own planning the RIA gets more and more attractive as you have around $25,000,000 in fee based programs. Starting out, from a cost and compliance stand point the B/D route might be a good one to go down, until you get enough assets under management. Many B/D offer fee based programs and if you build your business that way, it may be easy for you to transition to a RIA in the future. Just remember to build your Brand as you from the beginning. Either way, best wishes with your choice.
Hi Mike:
Do you have material recurring revenue from securities activities? If yes, you still may want a BD affiliation. If no, why would you bother unless you plan on selling commissionalbe products in the future?
As for insurance, it is much more efficient for you to choose an insurance partner who can consolidate all companies for you and handle much of the back office details from application through issue. just staying on top of underwriting issues alone will become a time drain unless your office is equipped to do so.
On the RIA side, you should speak to the various custodians ASAP. Keeping 100% of your own revenue is the ideal situation, however be sure to evaluate all of the other costs that you will incur. They can be limited to management software and portfolio analysis software. but then you need to take the time to do administrative work of hire someone to do much of it for you. A pretty easy call if you are truly starting out from scratch unless you are capitalizing your business to buy the tols and hire the talent. I think most advisors would rather find a firm to help them with this rather than incur all of the out of pocket costs up front and then struggle to get to profitability.
Enjoy the journey.
John Napolitano
U. S. Wealth Management
Hey, Mike,
Two quick comments:
Radio – have not had any problems with my B-D in terms of my radio show because I keep the talks high level. Same with my seminars/ speaking in general – I keep it high level. I don’t discuss product, etc. My feeling is that these forums are a way to build credibility. If you are credible, then people will approach you about meeting with you. In fact, if you are credible, then you could literally be showing cartoons on the screen and people will want to meet with you. I remember one seminar where the technology just did not work for me. My ending and punch lines were ruined. At the end of the seminar, as I was about to kick myself, several people approached me and told me it was the best seminar they had ever been at!
Insurance – I partner with an insurance agent. He is paid by the insurance companies directly. Any commissions from my insurance sales are paid directly to my DBA. I get his knowledge and objectivity (he represents all brands) and I get paid without having to learn a whole new slew of paperwork. He gets paid and recognized as well.
Hope that helps,
T
Hi Tim,
Thanks for the comments. The RIA B/D question is resolved. I also found a master general agent to trun my insurance business through.
Mike