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Four Key Advisor Questions About Transitioning

Four Key Advisor Questions About Transitioning

Take a deep breath and strategically work through the comprehensive project plan.

Transitioning away from a broker/dealer to launching your own independent RIA is no small feat.  At times, the sheer number of “to-do(s)” on a list and the required details can seem overwhelming.  But having successfully transitioned dozens of advisors to the independent space, I strongly recommend advisors take a deep breath and strategically work through the comprehensive project plan.

Obviously, there are many considerations when you are evaluating the decision to leave a large b/d and become an independent RIA. After speaking to hundreds of advisors, I thought it would be helpful to compile a list of four commonly asked questions about transitioning to independence. 


How much will I need in upfront funding to launch my RIA?

The reality is that the exact dollar figure will vary from firm to firm and you may not have access to your personal funds held with your current employer. An owner may need to secure a personal loan, charge large amounts to credit cards or lean on family members for short-term help. Unable to guarantee exactly how long you’ll need to sustain the business before revenue produces profit can be unnerving.

Below are a few costs to factor into your expense planning: 

  • Real estate: Building out a space will depend on the size and location of your office plus the number of team members you plan to employ. 
  • Marketing: Expenses include naming your firm, creating a logo and brand, as well as defining your message to the world. And, of course, building and designing your website.
  • IT setup: Building your technology infrastructure will include: wiring for internet, phone lines, and purchasing and installing hardware.
  • Legal: Another variable expense depending on your specific situation.  
  • Technology: Creating an integrated technology stack can be overwhelming and costly if done incorrectly;  vetting products and services is an important aspect to spending money wisely.


How do I safely secure real estate for my office?

Privacy and discretion are paramount when it comes to commercial real estate. It’s important to be discreet when viewing space, especially in smaller communities. If you are seen looking at a property by an industry colleague, it could raise suspicions and possibly lead to increased monitoring. 

Once you find the right space, you need to think about how to build out the space which includes furniture, wiring, phone systems, internet providers and, depending on the market, could require coordinating with unions. You might have to allay property management concerns around signing a lease by an entity that is not technically a new business line yet has no financial history. This situation may require an NDA between you and the owner in order to share your pro forma, business plan and personal financial statement. Since you are an unknown business entity, you may be required to secure tens of thousands of dollars in escrow so that a landlord is comfortable agreeing to a lease.


What are the licensing requirements in the new world? 

Coming from a large financial institution, it is not uncommon to hold multiple FINRA licenses, including, but not limited to 7, 63, 66, 24 and 9/10. The SEC does not have the same requirements when launching an independent RIA that acts in only an advisory capacity and does not collect commissions.

Since there are both compliance and financial considerations associated with maintaining your licenses, a decision will need to be made on whether you are earning enough commissions, minus fees and costs, to support the business needs. However, if you are functioning solely as an advisory only RIA, you have the option to consider dropping all broker dealer registration.


What about M&A and succession planning?

Even at the launch of your RIA, it’s prudent to think about M&A and succession so that you both protect your business and give it room to grow. Explore the time frame for adding an individual or a team. If your time horizon is on the shorter side, you may want to consider flexible office space. This strategy could also reduce a segment of your upfront expenses projected in your pro forma. Additionally, when thinking through the structure of your new legal entity, like your operating agreement, you may want to build in flexibility to start, allowing you to possibly offer shares or equity to future partners. Last, consider the health benefits you plan to offer to ensure your offering is competitive for future growth.

There are many factors to consider as you make the move to independence. However, we have found that although there may be a lot to consider with discipline and perseverance, you can not only survive but thrive in this new independent space.

Tara Coakley is senior  vice president, Transition Services, at Dynasty Financial Partners.

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