Perhaps you can never be too rich or too thin. But you can have too many choices.
As more wirehouse reps decide to ditch Wall Street and head to independent RIAs, they’re finding there are a number of possible routes to follow. They can start their own business, with all the challenges that involves. Or, they can join an existing, traditional RIA. Then again, they might opt for a few newer alternatives: doing a deal with a roll-up firm that buys a stake in their practice in exchange for equity or cash. Or, they can find a firm that takes a portion of revenues while assuming care of all back-office and infrastructure support. “The market is laden with choices now,” says John Furey, principal of Advisor Growth Strategies, a Phoenix, Ariz., firm that helps advisors make the transition. “The challenge is to sift through the alternatives to find the right fit.”
How to decide which path to select? Since there’s no one-size-fits-all, we offer the stories of three advisors, each of whom took a different route.
Going for the RIA in a Box
Christopher Tate joined Merrill Lynch right out of college in 1999 intending to stay there for the rest of his career. Then came the turmoil of fall, 2008, and its aftermath. “I started thinking I better look at some alternatives before it’s too late,” says Tate, who is based in San Diego.
He had his work cut out for him, since he didn’t entirely understand the difference between switching to an independent RIA and hopping to another wirehouse. His first moves were focused on staying in familiar terrain, meeting with managers from two other wirehouses. But, at about the same time, he also started poking around, finding out more about the RIA world.
Since most of his revenues were already fee-based, the RIA path seemed a good fit. Almost immediately, however, a conversation with a former co-worker who had started his own RIA from scratch convinced Tate he wasn’t ready for the expenses a pure startup would entail. With about $55 million in assets, he figured he simply lacked the resources—and the inclination—to take care of all the tasks involved in starting and running his own company. “My strengths lie in being an advisor, not setting up computer systems,” he says. “I was thrilled with the idea of plugging into another RIA system and getting up and running the day I started.”
Shortly after, Tate spent most of one day talking to a business development advisor at Fidelity, where he got a crash course in RIA basics. Then, a former colleague suggested he meet with a Schwab representative “who knew all the RIAs in town,” he says, and who introduced him to several possibilities.
First consideration was how much Tate would have to fork over to get the back office support he needed. In some cases, that was based on assets, in others, on revenues. And there were other questions. Would he have office space provided for free? Would he get sales support? What investment platform could he use?
One firm, a small boutique RIA, proposed that Tate plug his clients into one of its existing discretionary portfolios; in return, Tate would get 75 percent of the fee. Tate was unimpressed.
His impression of Concert Wealth Management was more favorable. In return for a share of revenues, Concert would supply soup-to-nuts infrastructure--from back-office support to legal help and software licensing. He could use their discretionary portfolio if he wanted to, or create his own. And he could rent office space with five other Concert advisors at a building three miles from his home.
It was a deal he couldn’t refuse. In May, about eight months after starting his search, Tate opened up Concert WM San Diego, his new practice.
Growing Their Own
Before the tsunami of 2008, Eric Thurber and his five-person team at Morgan Stanley had built a sizeable practice on Silicon Valley’s Sand Hill Road, serving venture capitalists and the entrepreneurs they invested in. (He started in 1998 at what was then Solomon Smith Barney). Watching the disaster unfold around him, Thurber knew he didn’t want to risk losing everything he had built over a ten-year-period at the firm. So, he and his two partners huddled together and decided it was time to leave. But, they realized, they needed to stay together so they could continue offering the wide range of services—estate planning, investment management and so on—they already provided to clients.
Initially, the partners started investigating five other wirehouses and banks, all of which offered tempting upfront bonuses. But, ultimately, Thurber and his partners decided the wirehouse investment platforms were not what they wanted. In early 2009, they began looking into going independent and calculating what that might involve. Briefly, over two or three weeks, they talked to a handful of RIAs in the area about coming on board. But, in short order, they came to a conclusion: They needed to build their practice on their own terms. With $740 million in assets, they had the resources to do it and do it well. “We realized there might be more risk personally, but with the right platform for our clients, we’d be better off,” he says. “I guess we didn’t want to be half pregnant.”
Over six months, Thurber and his partners threw themselves into the process, spending afternoons, evenings and weekends at one partner’s San Francisco home doing research on everything from the best hardware to buy, to office real estate and investment platforms. At the same time, says Thurber, they “leaned on” their custodians, as well as other RIAs, for advice. “We didn’t want to reinvent the wheel,” he says.
Thirty minutes after officially resigning from their employer in August, they officially launched their firm, Three Bridge Wealth Advisors. “We turned on the switch and we were off,” he says.
Hitching Your Star to a Going Concern
Louise Frances had been with Wachovia and its predecessors for ten years when the market crashed and it was taken over by Wells Fargo. “When your company is in survival mode, it’s difficult to focus on the needs of your clients,” she says. “I felt there had to be another way.”
Frances started doing research into the alternatives, reading newspaper and magazine articles and looking into local companies, focusing on both the independent b/d channel and RIAs. Afraid that word would get out, she avoided meeting directly with any firms. After three months, attracted by the higher fiduciary responsibilities of the RIA route, she decided to focus on it exclusively. With $30 million to $50 million in assets, she figured, the most sensible alternative was to join an existing firm. Starting her own business would just be too costly. And there were other considerations, too. “I wanted to be part of a productive team and be at a place where you can take a few vacation days and have someone to cover the phones for you,” she says.
Her first step at that point was to search Internet job sites. On Monster.com, she saw an ad from a local firm, Godfrey Financial Associates based in Latham, NY. As it happened, the president and founder, a solo practitioner, had been looking to bring on another colleague for three years. After one conversation with the president, Frances realized she’d struck gold. The two women seemed to agree completely on investment philosophy and client service. And she liked the company’s customized approach to financial planning, a much more personalized process than Frances had been able to offer before. She also checked into the company on her own, talked to the Chamber of Commerce and did some more reading online. “I was working at a company that was in the news for all the wrong reasons. Godfrey was in the headlines for all the right reasons,” she says. “That impressed me.”
After about five meetings, Frances was offered a slot as vice president. She started there in July.