Commentary October 10, 2021 at 07:44 AM Share & Print
What You Need to Know
- Starting your own RIA presents obstacles that can feel daunting, but none are unsolvable.
- A recent Cerulli Associates study found 87% of clients would rather stick with their financial advisor as they move to a new firm.
- Between outsourcing and hiring the right people, you will have time to do the parts of the job that you love.
Since 2020, the “breakaway” trend among advisors has indicated a shift within the industry. Accelerated by the presence of COVID-19, financial advisors have purposefully considered the independent route over the past two years with dreams of starting their own firm to control their hours, goals, staff and so on.
The trend is great for the industry — advisors have set out on their own paths, created businesses within their own vision, and consumers now have more options to choose from when planning their financial future. But advisors need to get there first, and starting your own RIA firm doesn’t come without its challenges.
Starting your own RIA firm comes with a series of obstacles that can feel daunting, even impossible to overcome. Some have a clear path to resolution. while others require more creative problem-solving. As a new business owner, you will be met with challenges you’ve most likely never encountered before. The great news is there are strategies you can employ to combat these fears and propel your new RIA firm toward success.
We’ve named the top five fears of starting your RIA business and how you can combat them. They might look different for each firm, but none are unsolvable. Through strategic partnerships, daring to have big goals, and trusting the process, you can pave your path to establishing a new RIA firm.
1. Fear of the Unknown
Setting out on your own to create an RIA firm is scary. There is no guarantee you or your business will be successful. You might be leaving a reliable full-time job or investing time and money into an endeavor with no promises.
You are most likely an expert in financial advice, but lack experience starting and marketing a business. You might know everything about building strong relationships with clients, but be at a loss when it comes to building a brand. The good news is that there are experts out there who can help you get your business off the ground.
Partnering with a business consulting firm allows you to lessen the burden of doing everything for your RIA firm yourself. Many have experience working through each step of the process when establishing a new RIA firm and can offer their expertise to answer questions. Consult the professionals before making a decision, and allow their feedback to guide you.
Accepting feedback and advice from trusted sources can help you better understand your trajectory, making the unknown feel more manageable. The good news is the failure of a newly started RIAs is almost unheard of, as it’s just a transition of taking an advisor’s financial practice inside another firm and transforming it into its own independent business.
2. Fear Your Clients Won’t Follow You
For an RIA firm to succeed, it must have a solid client base. You want clients that are there for the long term. There is a valid fear that clients from a former RIA firm will not follow you to your own company. Data on this, however, has revealed the odds of clients following you are good.
Cerulli Associates is a premier data research company in the financial industry, and according to a recent study, 87% of clients would rather stick with their investment advisor as they move to a new firm rather than reestablish a relationship with a new advisor.
Based upon your current employment agreement, you may or may not set time aside to have conversations with your current clients and inform them about your plans to begin your own RIA firm. If you are restricted in doing so, there are successful strategies that can be deployed to help you be ready to communicate with your clients as soon as you are permitted based on your employment contract and regulatory rules.
History says if you have good relationships with your present clients, they will most likely want to keep working with you and become among the first clients at your new firm.
Along with this, you should spend time and energy marketing your new RIA firm and its services to find new clients. Take these steps as early as you can. This provides the perfect opportunity to make a space for your new brand in the finance industry and ample time to gain new clients in the earliest stages of your new business. Between this marketing and word-of-mouth from current clients, you can build a quality reputation to attract your ideal client.
3. Fear of Not Enough Time
You are going to be very busy as a new business owner. Everything from managing logistics to finding new clients will fall on your plate. With all the work required to kick off a RIA firm, there might be concern of not having enough time to do everything. One way to get ahead of this is by outsourcing work and hiring the right people.
A business consulting firm allows you to receive sound guidance on your business decisions and outsource work. These companies truly understand what it takes to make an RIA firm excellent, and they apply these skills to certain tasks, freeing up your time to focus on the company’s larger picture.
You might also be starting with a very small team. Outsourcing work helps lighten the load while still delivering high-quality work. You can also focus on hiring people who are dedicated to the company’s mission. Ideally, they are hired into roles that allow them to use their strengths to further the company. Between outsourcing and hiring the right team members, you will have time to do the parts of the job that you love.
4. Fear of Lack of Support
The fear of not having enough support works in conjunction with the fear of not having enough time to accomplish daily tasks. Owners of RIA firms review portfolios, manage compliance, provide office support, schedule meetings, and more.
Between partnering with an external company and hiring employees with skills that fill gaps in the company and receiving service from an independent custodian, you can be confident that your business will have the proper support to reach its goals. Try periodically taking stock of where the company stands. Ask yourself what it could benefit from, then take steps to accomplish it.
Another great way to combat this fear is to study your ideal client and competitors. How can you set yourself apart from the other RIA firms in your marketplace to attract new clients? What can you offer potential clients that no one else can? By showing potential clients what makes you unique you can more effectively pitch your RIA firm as the best for your ideal client.
5. Fear of Isolation
Setting out to start an independent RIA firm can be perceived as isolating. You’re no longer on a pre-existing team of colleagues to support and be supported by. Having a community that supports you as you’re making important business decisions is crucial. There are a handful of ways to make sure you have this support.
First, consider having a mentor or other trusted figure with whom you have an established relationship before starting your RIA firm. Maybe this is someone who has their own RIA firm so they can provide you with guidance as you begin down the same path.
Second, hire people you trust and whom you would be happy to work with every day. Hiring quality employees who connect well with the company’s mission and other team members boosts overall company morale. A team of like-minded people will help you and everyone else at the company feel connected and supported.
Fears arise when starting any new business. As the owner of a new RIA firm, it’s important to remember you aren’t alone. Between working with an outsourcing partner, strategically planning your business opening, and hiring top-notch employees, you can successfully start establishing your own RIA firm.