I’ve Made My Decision
This week I feel like a pioneer embarking on a journey to discover new lands, with the difference in this case that many have blazed the trail before me. It’s up to us to learn from their experiences. Perhaps some of you are following this blog for this reason. If so, I hope you’ll benefit in some way.
After much thought and consideration, I have decided to go the RIA route and am very comfortable with the decision. I’ve had a great deal of experience with broker/dealers over the years. I’ve had experience with the largest wirehouse to the largest independent B/D and even though each is a little different, there are many similarities. Not to besmirch those companies, they, like all B/Ds, are subject to the same rules and regulations that tend to provide a degree of difficulty for the advisor. Since laws are generally passed because of a few bad apples, sometimes the pendulum swings a bit too far to one side, all in an effort to protect the consumer. So my decision is perhaps, in part, just a matter of timing, but the RIA platform seems much more attractive.
As an RIA, I’m responsible for creating all of my own agreements. I’ve already written the financial planning service agreement and am working on an asset management agreement. The RIA route also allows me to structure my fees any way I please. One advisor I spoke with charges a flat amount per year for his advice and nothing for the management of his client’s assets. Others charge only an asset management fee. As an RIA, you can have the fee deducted monthly, quarterly, or at any frequency of your choosing. I have decided to charge separately for financial planning advice and asset management. However, if a client engages me to do both, I will reduce the asset management fee. I will elaborate on all of this in the pages of the June edition of Investment Advisor magazine.
Another advantage with the RIA platform is the higher payout. Even though you’ll receive 100% of your fees, you are responsible for providing certain items yourself. For instance, many broker/dealers have some form of portfolio reporting software available for an additional cost. They may also provide you with a Web site for a fee. Then there may be a fee to simply associate with them. This reminds me of our tax system, in which we pay a fee for this and a fee for that. With all the additional charges, a lower payout, and increased regulation, the decision to choose RIA over B/D turned out in the end to be relatively easy.
However, there are a couple of additional things to consider. If you are newer to the business, you may need the support of a B/D while you gain experience. In either case, it’s important to note that you have to be willing to operate a business and take responsibility for its outcome. To state the obvious, you have to bring in more money than you spend. That said; you must operate in a highly ethical manner. ALWAYS do what’s right for the client. Clients will eventually come to understand if you’re really putting their interests ahead of your own.
And when things don’t go as planned, remember this: stressed is just desserts spelled backwards. So, best of luck and as always, I welcome your comments on how you assess fees or any other subject that’s pertinent to this discussion.
Hey Mike,
I’am dual registered: R/R & RIA
been down this road so many times myself – but still use a BD
Quick question: Do you plan to ever sell any variable annuities?
I sell maybe one or two per year – to clients who can make large after-tax contributions – and will benefit from the tax-deferal.
Now these are no surrender charge, low fee (0.65%) high quality VA’s.
Additionally there are now more and more ‘Fee-Based’ VAs being introduced, with even lower contract charges.
But . . . you need to be under a BD in order to sell any of these products. I have yet to find an RIA service provider that has a ’selling agreement’ with any VA-sponser.
Thanks
Jim McKeever CFP, ChFC
Newport Beach, CA
714-546-6139
Mike,
I am thinking of going the same route. I would like to know if I can still receive commissions from my life, disability and long term care business? The only life insurance I write is term and an occasional universal life policy.
Thanks.
Pat the Planner
Thanks for your comments Jim. I have decided to take the RIA route primarily due to 2 factors. First, I plan to continue writing and speaking and second, I like the thought of keeping 100% of my fees. On the variable annuity subject, the RIA does offer the ability to use VA’s. I’ve found they only offer their own and don’t have selling agreements with several different providers.
Pat,
Sounds like you should be able to. You’ll need to maintain your agreements with the various insurance companies though. I am planning to use a company who is a Master General Agent and has agreements with several different companies. They also offer LTC but not disability. Might have to contact the company who writes the disability insurance to secure an agreement with them. The only caveat is this. If you plan to write variable life you’ll need a broker dealer to run it through.
Hope this helps.
Mike
Pat,
Am thinking about leaving my BD contract early to take on the independent RIA model. Have many good excuses why I am considering leaving, but very few printed advice columns/resources to turn to. In particular, I’m interested in the experiences of others who have done the same. Any suggestions?
Mike DG
I went fee only RIA last fall. Was dual for 15+ years. owned my own RIA. Was with several independent B/Ds. B/Ds were good but wanted to be free of conflicts of interest and some of the duplicate expenses. It was traumatic making the decision to cut the final BD tie but once made it was relief. Extra time and paperwork converting any non RIA accounts to RIA and discussing change with clients for 3-4 months. I terminated my NASD registration except for the S. 65 whcih I hold through my RIA and also gave up my life/health license. I use the custodial no load low expense VAs if required but my VA business is extremely small- I happen to use Schwab. So far so good but looking back with the market marching upward is was a great time to make the change.
Also: remember the licensing in different states. usually states have a de minimis of 5 clients before registration as RIA unless you have a physical office then you need to be registereed in that state. Above is for over $25MM federal RIA.
Also: remember the licensing in different states. usually states have a de minimis of 5 clients before registration as RIA unless you have a physical office then you need to be registereed in that state. Above is for over $25MM federal RIA.
Donald,
Thanks for your comments. I have (had) a series 7, 24, 63, and 65. Last July, when I was with JP Morgan, they delicensed all financial planners. It sounds like I can maintain my 65, but how exactly? What about my 63?I would appreciate any advice you can offer here.
Mike,
Agreed on the ethics piece. It does not matter what route you choose – if you do not do right by the client then…
As to the 100% payout, I chose my B-D for many reasons, including payout. Of course, when I factor in all of my expenses, from rent to radio to Compliance, my payout is probably more like…:-)
Best,
T
Mike,
I don’t believe you need S63… just the S65 to be RIA (agent of). 65 is maintained through your RIA.
Mike, a couple questions. When starting your RIA company, it appears to me the compliance is a headache. Your website has to save all emails for 3 years (I think), and they cannot be deletable. In addition, I see that to use someone like Schwab for the back office stuff, you need to have $10 million AUM. Is there not someone out there where you can set up your clients, and then bulk trade stocks, and then divvy up the buy into the individual accounts. And then writing your own contracts – that seems like an accident waiting to happen. Isn’t there some place to get the contracts, and then modify them to your taste – why try to go thru the learning curve that others have already done?
I am also getting ready to start my own RIA, and would like to find an easy way to do it.
Thanks for the writing that you have done, and good luck.
Scott,
Assets – Fidelity requires 5 mil. If you can meet that and you’d like to call them send me an email, I’ll give you a number. I think they are a good platform for an RIA.
Compliance – As far as it being a compliance headache, there are several resources that can assist here.
Contracts – I wrote my own financial planning engagement letter. I am working on an investment agreement. I got a sample from another advisor and I’m sure there are others who would share their with you.
Starting your RIA – Go to iard.com and fill in the ADV part I. There is a help number (email me if you need it) and they can help you manuever the system.
Mike-first off, like many others, I want to thank and applaud you for taking the time to share your experiences-I find it extremely valauble. question for you: converting from b/d to ria means giving up trail commissions unless one is able to find the ncreasingly rare b/ds that will allow commission biz while doing fee-based separately. so far, best suggestion i’ve gotten is to simply convert trail fees to fee-based platform so, eg, where getting 1/4% trail, charge this fee within ria environment. obviously the admin headache in doing this is substantial. just wondering if i’m missing something or there is a better way?
thx
Bob
Hi Bob,
I choose RIA due to the writing and speaking I’ll be doing. I seem to recall that when I was talking to RIA custodians, they suggested they knew some b/d’s who would allow you to have an RIA relationship also. You might try call Fidelity (Fran Lee 617-563-1446) or Schwab (Ron Mendoza 877-687-4085) or Raymond James (866-833-3358). THey may be able to tell you who the b/d’s are. I hope this helps.
Mike