When looking to leave the captive employment model and establish their own RIA, advisors often ask, “How long will this take?” and, “How much time should I give myself between now and my launch date?”
Based on our years of experience guiding advisors through this process, we believe advisors shouldn’t plan to launch in less than four months.
On the other hand, once the process of establishing their own RIA is kicked off, we don’t believe advisors should give themselves much more than six months lead time, simply because as they further explore the benefits of independence, it will get that much more difficult to continue working in their current captive environment. One advisor who was in the process of setting up his RIA while still employed at his current firm said, “I’m building this beautiful Ferrari, but I’m not allowed to drive it yet, and it’s killing me.”
Selecting a custodian and choosing the various technology solutions that will round out your RIA infrastructure (reporting, CRM, trading, financial planning, etc.) takes time, but it is actually real estate that will take the longest, and therefore should be tackled first.
As we have written, COVID-19 has changed the way businesses think about traditional office space; that being said, breakaway advisors will want to establish some form of office space to add to the legitimacy of their new business. Ideally, advisors will find a recently vacated law office or similar floor plan, where they will only need to move a few interior walls. But advisors often fall in love with completely raw office space, which will take several months to build out. When space is identified, an interior designer should help the advisor select furniture for the space. Once ordered, furniture typically takes eight weeks to build and deliver, after which it will need to be installed and wired with technology. For these reasons, we always recommend evaluating office space first and letting the rest of the project plan fall in place behind that.
Other items that should be addressed early in the process are legal, marketing and IT. It is imperative that advisors have legal counsel review their specific employment agreements and determine exactly how the advisor can conduct themselves during this awkward period of “preparing to compete,” prior to their resignation from their current firm. “Preparing to compete” is an important legal term that advisors should have defined for them by counsel. A marketing firm should be retained as early as possible to help with naming, logo, branding and website design. Tying directly into these marketing efforts, an IT firm should be identified early so they can order phone lines and numbers and determine the hosting of the RIA’s future website. Without phone numbers ordered, business cards can’t be finalized, email signatures can’t be designed, and website copy can’t be completed.
The last piece of the breakaway puzzle that takes considerable time is the custodial householding spreadsheet. Based on the advisor’s employment contract, the amount of client information that can or cannot be taken with them after resigning from their current firm will vary, which is why it is imperative advisors consult legal counsel very early in this process. For a protocol transition, advisors are able to provide their new custodian with client name, address, phone number and email address, and they can indicate what account types make up the household.
For example, the Jones family household is made up of two individual accounts, a joint account, a trust and two IRA accounts. This information helps the custodian begin to build the proper packet of documentation required to open accounts and transition assets for the Jones family. Recording this level of detail at the account level (not the household level) takes advisors a considerable amount of time, especially when they are also juggling real estate, legal, marketing, IT and a host of other items while building their RIA. Because every advisor’s goal is to reach out to clients one time and not continue to bother them with follow-up questions regarding paperwork, the level of success and ease of transition is solely dependent on the quality of data provided to the custodian. The more attention advisors give to the householding spreadsheet and the more time devoted to it, the better.
While the list of to-do’s can feel overwhelming, thousands of advisors have successfully broken away from the employee model to establish their RIAs. We believe it is absolutely possible to do this with the right game plan, and it is worth the effort to do so. By tackling the largest and most time-consuming tasks first, we believe advisors should be able to launch their RIA in that four- to six-month time frame.
Matt Sonnen is founder and CEO of PFI Advisors, a consulting firm that helps financial advisors build more impactful and profitable enterprises. Follow him on Twitter at @mattsonnen_pfi
