Welcome to the second part in our series on joining an established RIA. In this month’s issue, we continue to explore an alternate pathway to achieving true independence—joining an already established RIA firm . This time we hear from the point of view of an RIA that has been in business since 2002. Read on for some valuable insight from Matthew B. Cooper, president of Newport Beach, Calif.-based Beacon Pointe Wealth Advisors, a hybrid RIA with a broker/dealer affiliation, which is actively counseling and hiring advisors looking to go independent.
Q: What can an existing RIA firm to do create a happy home for advisors going independent?
Cooper: It is important to establish a platform that allows brokers going independent to move the majority of their business in the least disruptive manner possible. Therefore, establishing a hybrid RIA and broker/dealer platform is critical as very few brokers have a completely fee-based business. It is also a great benefit to allow the brokers to transfer their business in kind as much as they possibly can. Many RIAs insist that brokers liquidate client holdings and reinvest only according to their core investment model or philosophy. It is far more comfortable for clients and welcoming to brokers to be able to move clients and continue to manage those client accounts the same way and under similar economics as they had at their previous firm. Also remember that economics are a big part of the equation. Providing a larger payout, equity opportunity, and solid leads to advisors who join your practice will go a long way toward making them comfortable in their new home.
Q: What might an RIA do help in the smooth transition of the advisor going independent?
Cooper: The biggest factor in a smooth transition is to start early and be organized. As such, RIAs should encourage new hires to coordinate with the firm’s custodian and obtain a transition spreadsheet to organize all accounts so that the custodian can “paper” all the accounts for your clients to move their assets. This spreadsheet will most likely take more than a week or two to populate, so allow the time. Also, it will take the custodian a couple weeks to paper the accounts and prepare packages to be mailed to clients. All together allow approximately six weeks for this process.
Although the custodian will have resources to assist the RIA in bringing the advisor's accounts on board, it is also critical that the RIA dedicate human resources staff to ease the broker’s transition immediately following his or her resignation. This is a stressful, yet exciting time as the broker now has the opportunity to contact clients and convince them to join him at his new firm. This can be a great time to reinforce the relationship with the client and highlight how the move is an even bigger win for the client.
RIA firms that are serious about hiring should also consider signing the Broker Protocol, which lays out a set of rules for brokers who leave one firm to join another. If these rules are followed, the risk of litigation may be very low, thus making the transition smoother. Failure to comply with the broker protocol may invite trouble.
Finally, it is important for the RIA firm to be prepared to pay brokers in the form of a temporary salary or draw to help them during their transition. That’s because when brokers make the switch they are temporarily putting their income on hold until their book of business transfers. This temporary income may range from a few thousand to several thousand dollars per month, but it just makes good business sense.
Q: What going forward can an RIA firm do to support and encourage an advisor’s professional growth and development?
Cooper: To support the professional growth of an advisor it is important to encourage and fund professional education and designations. The CFA, CFP and CIMA are three highly respected designations. In addition, the principals of the firm should consider attending meetings with the new advisor early on to help demonstrate best practices and assist the advisor in conveying the highest level of professionalism. Helping the advisor network with other highly regarded professionals such as lawyers, CPAs, and bankers will also help develop the professionalism of the advisor over time.
Q: What going forward can an RIA firm do to support and encourage the growth of an advisor’s individual business?
Cooper: The growth of the advisor’s business is an important focus point for both the RIA and the joining advisor. First and foremost the principals of the RIA firm must practice a culture of growth. The fact that an RIA firm is looking to bring on an advisor illustrates they are looking to grow, but an outward focus on prospecting, marketing and bringing on new clients is essential.
Being able to provide an advisor a recurring source of leads is invaluable. Some custodians, for example, have referral programs for RIAs . This could be a great source of business for new advisors. Another good source of leads could be solicitation agreements with local CPA firms. This can be a big value add for the joining advisor as he or she can spend more time with these firms and help develop more business.
The principals of the RIA firm must also be willing to attend meetings that the new advisor has set up with prospective clients or professionals such as lawyers or CPAs. Getting involved on this level not only shows the prospect that you stand behind the advisor, but it also gives the advisor a boost of confidence as he or she gets acclimated.
Finally, RIAs need to be willing to fund and support marketing activities for the new advisors. For instance, advisors may have a history of doing client informational dinners in a seminar-type setting and asking the clients to bring friends to these events as prospects. Be willing to fund and participate with the advisors on these events.
Q: As an established RIA, how do I find advisors who might be interested in joining my firm?
Cooper: There are literally thousands of brokers looking to go independent and finding the right ones is no easy task and requires a dedicated focus. There are databases available for purchase from companies such as RIA Database or Discovery that can provide you with all the names of registered reps throughout the country. You can send targeted e-mail or regular mail and call brokers in your area. If you do not have the time to call yourself, you can hire recruiting firms, who for a fee will make the calls for you. You’ll typically pay the recruiting firm a percentage of the trailing 12-months revenue for the brokers you hire.
The institutional sales team at your custodian can also be a great ally and resource in helping you find possible candidates. Reaching out to your custodian to see how you can work together could be beneficial for both of you.
Click here to read part one of the two-part series.