In the entrepreneurial world, there’s an age-old idea that the most successful founders begin by building a solution to their own problems. In fact, many of the advisor fintech products you might use today started because one person felt they could build a new or better solution to address their pain points—they did, and the rest is history.
While this mentality can serve tech founders very well, I believe the opposite is true for advisors considering starting their own firm, especially RIA’s. Over the years, countless advisors have expressed to me that they are unhappy with how their current firms run the show—a terrible employee culture, processes that cost time and money, limitations that affect clients’ best interests—and that they want to leave. And sometimes, from advisors that feel totally burnt out, that sentiment is followed by, “Should I just start my own firm and build it the right way?”
Whether or not to start your own RIA is a complicated answer, but this first rule of thumb is simple: If you’re looking to start a firm simply because you feel like you can’t find a better solution, don’t. You may be in control, but the day-to-day problems you face today will only be replaced by new ones.
Instead, consider the pros and cons of joining an existing firm vs. starting your own. If you approach the search thoughtfully, you may be surprised to find a firm that meets all of your needs and provides the resources you need to grow your client base. Alternatively, you may find that there are benefits to taking on the risk of starting your own firm—however, I highly recommend eliminating all other options before taking this monumental leap.
Every advisor’s situation is very different, so here are some of the most common questions I receive from advisors who are wondering “Should I?”:
If I decide I want to start my own RIA, when is the right time to start a business?
The answer to this question varies from advisor to advisor. If you’re looking to build, here are the boxes you should check first to ensure you’re well positioned to cover the costs of things like technology, compliance, and operations:
• You are doing 75% or more of recurring revenue in an advisory business, and it is growing each year
• You have reached $500k in recurring revenue
• You believe fundamentally that the fee side is the only right way to serve your clients
Will my business be worth more if I tuck into an existing firm or if I start my own?
The answer to this question depends on your size. Ask yourself, is the firm’s market value greater than mine alone?
What you really should consider is not the potential value of your book of business, but the efficiency that a larger organization is going to drive, which means a bigger margin and more resources to allocate towards innovation, technology, marketing, and operations. You may also look at alternative options such as operating under a DBA with an existing firm.
Alternatively, if you feel that you have something special that you can’t find at a large firm, and you’re willing to take on all of the risk, then it may make sense to start your own.
If I start my firm, how would I handle compliance?
If you’re on your own, you can find outsourced compliance resources that will help keep you in the right lane—but remember, at the end of the day, the puck stops with you. Advisors sometimes want to run away from brokerage and FINRA to go to the SEC—and the truth is, regulation is regulation. If you’re thinking of cutting corners because of compliance, then you should get out of this business because you’re not serving clients in the right way.
How would I build the type of company culture I’m looking for?
In my experience, RIA’s do the best job of creating and maintaining great company cultures. If you’re thinking of starting a firm simply for the culture, consider these points first:
• Culture doesn’t exist with a party of one. Until you reach more then five employees, your company’s “culture” is just a culmination of various personalities. So, you must understand that culture could be years in the making.
• For a more immediate shift in culture, tucking into an existing firm that aligns with your values could be a better solution that will enable you to focus more on serving clients than running the business.
Some advisors are born entrepreneurs and are equally or more drawn to actually running a business than being an advisor. If you identify with this description, then I say, make the leap and build a business that you are proud of. That said, there are countless options for advisors who are just looking to serve their clients in a way that is values-aligned and profitable. Whichever you resonate with, remember that you’re not alone and there are consultants, resources, and other advisors who can help you make the right decision.
Ryan Shanks is founder and CEO of FA Match, a digital recruitment platform that connects experienced advisors with financial services firms equipped to help them thrive. Ryan brings over 20 years of experience as a recruiter and “sports agent” to financial advisors. Learn more at www.famatch.com.