Advisor Corner: Joining an Established RIA (Part 1 of a Two-Part Series)

If having more autonomy, greater alignment with your clients’ interests and potentially keeping a bigger share of the profit appeals to you, becoming an independent advisor might be up your alley. There are, of course, many pathways to achieve true independence. You could, for example, start your own registered investment advisor. Another, lesser known, but equally viable option is to join an already established independent RIA firm. In this issue, we spoke with Michael Watson, director of product management at TD AMERITRADE Institutional, a well-known custodial firm, about the potential benefits of such a move. (Check back next month to hear more about joining an existing RIA firm, this time from a hiring firm’s perspective.)

Q: Why would an advisor decide to join an established RIA instead of starting his or her own firm?

Watson: There are really four motivators that we have seen. The first is financial—it can potentially improve the financials of an advisor’s firm by creating economies of scale and bringing together complementary business capabilities. The second is accessibility—so you can leverage resources and the expertise of the firm you’ve partnered with. Some examples would be the ability to expand service offerings, branch out into to new geographic areas and get access to new types of clients. The third motivator is valuation. When you take two firms and bring them together, you create more equity, and having greater scale can improve an advisor’s ability to compete. The fourth motivator is experience—the ability to use already existing professionals operating in the independent RIA model, as well as existing processes and technology instead of reinventing the wheel. When an advisor joins an existing RIA, the wheel is already created.

Q: What type of advisor might be interested in joining an established RIA?

Watson: We’re seeing interest from two categories of advisors. The first consists of registered representatives employed or affiliated with a broker/dealer who don't have the time, resources or want the responsibilities associated with starting an RIA. Starting an RIA—while desirable for many advisors— may not be the path for everyone. There’s such anxiety about going completely independent in part because there’s no security blanket in terms of compliance, technology and other issues. Some advisors are simply interested in continuing to build new client relationships. Another issue is time. It can take a long time to establish an RIA. What’s nice about joining an established firm is that advisors don’t have to take that leap. Joining an existing RIA as an employee allows the breakaway broker to continue to build his or her book of business while gaining access to the back office support, products and services from the established firm.

The next group consists of newly formed RIA's or firms that typically manage less than $50 million in assets under management. For this group, there can be substantial benefits afforded through economies of scale. Merging with an established RIA allows an advisor to share in all of the costs associated with running the firm, which can lead to a higher valuation multiple for the combined entity. Each firm would have an equity stake as a partner.

Q: Are there any downsides to joining an existing RIA?

Watson: The one thing that you should look out for is culture clash. What really is important is finding a compatible culture and interests that are aligned. The biggest hurdle is to find the right match –the right firm to be able to partner with. And in many cases finding the right firm to partner with comes down to culture. For example, are you going to be able to work together, share the same philosophy about client service and investment management, and share ownership?

Q: Clearly the RIA market is a huge one. How can an advisor find another firm to partner with?

Watson: There are plenty of third-party investment banking firms, recruiting firms, and consulting firms that can help advisors find a firm to partner with. Additionally, we at TD AMERITRADE Institutional offer AdvisorLinkTM which is a referral program that can provide introductions to independent RIA firms that may be looking to hire and/or acquire new talent. AdvisorLink is meant to simplify the process of joining an established RIA by providing an advisor with the flexibility to find the right firm to match core values and philosophy. The service can also connect firms looking to buy, sell or merge their practices. Developed in conjunction with an ECHELON Partners (an investment bank specializing in transactions within the wealth management industry) and other independent recruiters, AdvisorLink can help potential partners connect.

Access to the AdvisorLink program is provided by TD AMERITRADE Institutional as a service to financial advisors using the brokerage, execution and custody services of TD AMERITRADE Institutional. AdvisorLink is administered by third-party firms not affiliated with TD AMERITRADE. TD AMERITRADE is not responsible for products, policies or services of any third-party.

TD AMERITRADE does not guarantee nor are they responsible for the completeness or accuracy of the data provided or for the quality of any product or service. TD AMERITRADE makes no warranty or representation with respect to the service as to suitability or fitness for a particular purpose. In no instance should the listing of a third-party be construed as a recommendation or endorsement by TD AMERITRADE.

Michael Watson is the Director of Product Management at TD AMERITRADE Institutional, Division of TD AMERITRADE, Inc., member FINRA/SIPC.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. Past performance of a security does not guarantee future results. All investments are subject to investment risk, including possible loss of the principal invested.