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Also available as podcast (Episode #114)
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What Are The Most Stressful Parts Of Starting An RIA?
The rewards for transitioning your practice to the RIA model can be significant. Better economics and increased flexibility are two of the main reasons the RIA channel continues to be the fastest growing channel in the industry. Even when it makes sense to make such a transition, though, it doesn’t mean the transition process itself is stress free. You can prepare yourself for the temporary challenges involved by knowing what the stress points are and how to mentally prepare for them.
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Want to learn even more by better understanding what a transition to the RIA model might look like for your own practice? I encourage you to schedule a Discovery call, and I’d be happy to begin that conversation with you.
Full Transcript:
What are the most stressful parts of starting an RIA? That is today’s question on the Transition To RIA question and answer series. It is episode #114.
Hi, I’m Brad Wales with Transition To RIA, where I help you understand everything there is to know about why and how to transition your practice to the RIA model.
If you’re not already there, head to TransitionToRIA.com where you’ll find all the resources I make available from this entire series in video format, podcast format. I have articles, I have whitepapers. All kinds of things to help you better understand the model.
Again, TransitionToRIA.com.
Today’s episode is a follow-up of sorts to episode #109. If you didn’t catch that one, it’s a couple episodes ago, I did an episode on what are the most exciting parts about starting an RIA.
I try to be very fair in all my episodes. I never want to be accused of only having rose-colored glasses on about what it is to transition your practice to the RIA model. There are always two sides to every coin and you need to understand both the pros and the cons and how it would apply to your situation.
So, after I did the episode on what are the most exciting parts about transitioning to the RIA model, I thought it was only fair if I also did one about what are the most stressful parts about transitioning your practice to the model.
This is not to get anyone concerned. It’s to make sure you mentally prepare for what would be ahead of you if you were to make a transition. There are stressful parts of the process. That is what I’m going to go through here today.
I know these issues firsthand because a part of what I help advisors and teams with, it’s not just figuring out should you be exploring the RIA model to begin with, what would it look like for your practice, what are all the different ways you could go about transitioning into the model, how do figure out all the logistical pieces you need to put in place.
While I do all of that, at times I’m essentially a therapist, for lack of a better term, as I help advisors and teams through some of these stressful parts.
It can be a mental challenge at times to get through some of these steps. I find myself playing that role, being a sounding board of reassurance. This is normal, you can expect this, you’re going to get through this, you’re going to get to the other side of the mountain.
I thought it would be helpful to share some of those examples so you know what might be ahead for you if you were to make the move yourself.
And to be sure, I’m happy to play that therapist role. That is part of my value proposition. It is to get you from point A to point B. Some of that is blocking and tackling and logistics, some of that is therapeutic to help you mentally get through all the steps involved.
With that, I’m going to go through some examples of the stressful parts of this process. These are roughly in chronological order of when they occur through the life cycle of a transition.
Will my clients follow me?
First, and pretty much every advisor, every team ponders this….if I were to make a move – and this is not exclusive to the RIA model, this could be making any sort of transition – if I were to make a move, will my clients follow me?
This is important to consider because if you don’t feel the bulk of your clients – and you won’t get 100% of your clients for various reasons – but will the bulk of your clients follow you to where the math of a transition works. Where it’s advantageous for you to make the change.
There is soul searching that must be done. How deep are the relationships you have with your clients? Do your clients feel they are working with you, or feel they’re working with the firm?
For most of you that are tuning in to this, your clients overwhelmingly feel they are working with you. The days of the firm being the most important part, the name of the firm on the side of the big skyscraper being the most important, those days are done. The world has moved on. Clients now have relationships with the advisors or teams they work with. That is where their allegiance is first and foremost.
Back in the day you could argue maybe it wasn’t always the case, or at least as prevalent as it is now. But that is the case now.
Nonetheless, I understand why this is stressful, I understand why this goes through advisors’ minds because hey, I need my clients to follow. I’m going to take this leap of faith. I need them to follow to make this work.
It’s natural to be stressed about that or have that feeling. But I would I would tell you, from the hundreds of transitions I’ve been involved in over 20 years in different capacities, I couldn’t tell you of someone that got through the education phase of should I even be doing this, got through the due diligence phase of should I be doing this, got through the logistical preparation steps and still made the move, I can’t think of a single instance where it absolutely did not work out like they thought. Where they thought they were going to bring 90% of their clients and only 25% moved.
Now, there are exceptions you hear about in the marketplace. For instance, if someone’s been terminated from their firm for some reason and they’ve now hastily had to make a change, obviously that’s an entirely different scenario of what may or may not work out.
Or if you’ve perhaps joined some firm, clients were assigned to you, you’ve only been there 18 months, the clients have been with that firm for 15 years, that’s a different scenario.
And so I want to acknowledge that there are scenarios where this doesn’t work. But again, most of the folks that are in those buckets, again, except for the person that unfortunately has been terminated that now has no choice – they presumably have to now be trying some new pathway – but most of those scenarios where it’s just arguably not going to work out with good expectations, the advisors have already come to realize that as they’re going through the due diligence process. Or at least their expectations are set to the point whereby the time they leave, they roughly know what’s reasonable and they’re making an educated decision about it.
But for the non-exception scenarios, I can’t recall an instance where an advisor’s results moving client assets was just nowhere close to what they thought it would be.
In almost every instance, there’s initial fear that clients won’t follow. But then after the advisors start making the transition, and after they get five, ten conversations deep with their clients, and everyone’s excited for them – “absolutely, just send me whatever you need me to sign or whatever” – all that fear goes away and they move forward.
Again, there are some exceptions, but the fear is there, that stress is there. It’s going to be there for you. You just need to think about it logically. As again, if you get all the way through the process, you’re generally going to be okay without any concerns.
Everything happening at once
The next example where there can be a lot of stress is in the due diligence process, as you start putting the pieces in place, it will be a lot of work.
This is before you’ve resigned, before you’ve started making the formal transition. There’s a lot that goes into making a transition.
Now, a big part of my value proposition is helping you understand, should you even be going down this path? What are your options for going down this path? Then depending on what direction that takes, there are a lot of things that must be put in place whether choosing custodians, choosing technology solutions, getting a website setup, getting E&O figured out.
I help you figure out all of that. I help you know what you need to be aware of. I help you prioritize. Help you figure out the solution providers to use. I help you with all that.
There is a point where you will have multiple things on your plate all at once. And then by the way, you still have your proverbial day job of being an advisor and working with your clients and responding to their needs and your team’s needs and all that sort of thing.
That can be stressful. There’s no way around it, it is a lot of work. Certain things can be prioritized and done before others. But you do reach a final stretch, I see it all the time in the final weeks, final month or two leading up to the transition point, where it is a lot of work. You must mentally prepare for it and mentally get through it.
I’ll end with some takeaways how you can manage this well, but it does pile up. You just need to be prepared. You will get through it. It’s just a matter of staying level-headed, working through the process.
Resigning from your firm
Next, in a roughly chronological step, is you’ve done all this preparation, you’ve got all these things you’re juggling, and then it comes the day that you have penciled in for the move. There’s a whole process for what day you should pencil for that.
But when that day comes, no matter how long you’ve thought about doing this, no matter how much you’ve researched, no matter how much it makes sense for you to be doing this, and how great things will be on the other side of the mountain after you get over all this, it still is a stressful day for you to go in and resign. That first step is always the hardest.
When I became an entrepreneur myself, I would hear this same sentiment from other entrepreneurs
I worked in a W2 corporate environment. I had to make the decision to put in my two-week notice, go start my own firm. I don’t care how much planning you do, you’ll still have butterflies the morning of the day you plan to give you notice, to resign from your firm.
There’s no way around it. It must be done. Know that it’s coming. Know that there’s some anxiety with that. There’s some stress with that. That’s why they say the first step for any entrepreneur is the hardest because no matter how much homework you put in, no matter how much this makes sense, no matter how many spreadsheets you’ve built, penciled out the economics, you still must take that first step. That is going to have some anxiety, that is going to have some stress.
And quite frankly, some folks will never be able to take that step. But the ones that do, get rewarded by the fruits of their labor that is still to come. But make no mistake, that’s a stressful moment as well, the actual day of resigning.
Reestablishing revenue
The next stressful moment is essentially right after resigning.
Even though you’ve planned all this out, you have a process for moving clients over, but the moment you resign, at that very moment, your revenue, your income, has turned off, until you have conversations with clients, move the accounts, turn the fee-billing back on.
At that very moment, there is no revenue coming in. There are, however, expenses already occurring. Maybe you have an office, or you’re bringing a team with you and now have payroll.
Now, there’s a way you map all this out. I did an episode on how much cash you should have saved up before you make the move.
But make no mistake, there’s still some stress. I don’t care how much you’ve spreadsheet it out, I don’t care how much cash you have in the bank, I don’t care how much planning you’ve done, it is still a weird feeling to know, on that day, you have no revenue coming in. Maybe for the first time in a long time in your career, you have no income at that moment.
Once the client accounts start moving over and you turn the fee-billing back on, that revenue will quickly come back on. But it can be stressful before that happens. It’s a weird feeling. There’s no way around it. You just need to mentally prepare for that, and make sure you have the cash needed to ride out the temporary lull before the revenue turns back.
It can be lonely at the top
Then the final example, which this is not an exhaustive list, but this final example is something I come across a good amount.
This is particularly applicable if you are the main person at your RIA. Maybe you’re 100% owner, or you’re by far the largest part of the team and you have other team members, maybe other advisors, but at the end of the day, you are it, you are the king of the castle – for lack of a better term – as compared to maybe if it was you and a partner.
If you are king or queen of the castle, and you’re making this move, you are going to be dealing with all these stressful points we’ve been talking about. But as the leader of your firm, you need to prepare to help your own team members through some of this stress as well.
They’re going to have their own stresses. It’s going to be a change for them. They’re going to have a lot of work. There’s going to be some long days. You as the leader of the group must put a brave face on and help them through it. Show confidence. Guide them through it.
But the challenge is, at the same time, you are dealing with your own stress, but there’s no one to turn to.
If your team members are stressed, you should express to them they can and should come to you. If they’re stressed, let’s talk it through. We’re going to get through this. They can come to you. We’ll be fine.
But what happens when you’re the one that’s stressed? It can be lonely at the top. You might not want to turn to your team members and show, it sounds bad, but show essentially weakness, because you don’t want to do anything that lowers the confidence of your own team members.
Yes, you might have a spouse or someone at home, but maybe that spouse doesn’t necessarily understand some of the logistics of how our model works. Maybe there’s something you want to vent about, or complain about, or discuss things you’ve had to figure out. But they might not understand what you’re talking about.
That’s where I’m a therapist at times. Sometimes I am that person and I’m happy to be that person.
Who are you going to turn to when you have your own stress and you can’t turn to your team members? Your spouse is probably going be very supportive of all this, but maybe doesn’t understand some of what you’re talking about.
You need someone to turn to. I’m happy to be that person. To mentally help you through it.
If it’s you and another partner and you’re equal partners and you’re 50-50, I’m still happy to play that role to the degree you want me to. But at least you have each other to talk it through with. You’re on the same level, the same plane.
But if you’re that lone person at the top, it can be very lonely, so just be prepared for that from a mental standpoint.
I’ll wrap up with a few takeaways, as I don’t want this to be doom and gloom.
Everything I’ve been describing (as stressful) is temporary. It is part of the process. These are one-off scenarios. You only deal with the stress of resigning once.
Some of these stresses are short. Maybe it’s one day, or a few weeks or months. But it’s all temporary, and you must remind yourself why you’re doing this in the first place. The promised land, if you will, on the other side of the mountain. The better economics, the better flexibility, all the things I talk about in these episodes of why advisors make this move. The reward is there if you are willing to put in the effort to get there, but it will be stressful at times. But those are temporary stressful points.
As a business owner, as an entrepreneur, as an advisor, I’m not saying you won’t have any stress for the rest of your life after you’re on the other side and you’re just running a business.
No matter where you are now, as an advisor, there’s stressful times. The market is down, clients are upset, whatever the case, there are stressful times. But the main ones I’m talking about here are temporary.
You tell yourself, I just have to get through this phase and the rewards will be there and it will all be worth doing. You wouldn’t have got this far in the process if you hadn’t already made that calculation of what your practice will look like in the future and how that compares to what you have now.
The final thing I’ll leave you with is there are many advisors, some of who might be watching or listening to this, that will never be able to overcome their fear of this, or they’re not going to be able to handle the stress.
I tell advisors that have gone through this and have launched an RIA that they should be very proud of themselves because there are countless advisors (such as many wirehouse advisors) that will reach the end of their careers, and they always had wanted to transition to the RIA model, but they didn’t.
They stay at their firm and are unhappy for the entirety of the balance of their career. They know economically they would have been better off going independent, from a flexibility and satisfaction standpoint they’d be better. They know they would have enjoyed it significantly more. They know they should have done it, but they could just never bring themselves to go through all the work that’s involved. Or maybe they feared the stress that’s involved.
It’s always easier to just kick the can, and not make a change. Unfortunately, there are many advisors that will reach the end of their career in regret for never having done it and at that point it’s too late.
The RIA model is not for everyone. I’m not suggesting it is, I never say that. But where it’s a fit, it’s a lot of work to get there, but the rewards are there.
Are you willing to go through a temporary period – measured in months, we’re not talking days or weeks – of a lot of work and a lot of stress? But for the balance of your career, which would measure in years, if not decades, you can be potentially better off. If that’s the case, are you willing to go through that temporary point of time?
That’s why I made this episode, so you’re at least aware of what you can expect going through the trenches to get to the other side.
With that, as I said at the top, my name is Brad Wales with Transition To RIA. This is what I help advisors with. Help you understand what you can expect when making a transition. Should you be doing it? What’s the process? What you can expect. So you are prepared for everything as you make this journey to get to the other side. I’m happy to have that conversation with you as well.
As a starting point, head to TransitionToRIA.com where you’ll find all the resources I make available from this entire series in video format, podcast format. I have articles, I have whitepapers.
At the top of every page is a contact link. Click on that and you can instantly and easily schedule time to have a one-on-one conversation. Whether you want to talk about today’s topic or anything else RIA related, I’m happy to have that conversation with you.
Again, TransitionToRIA.com.
With that, I hope you found value in today’s episode, and I’ll see you on the next one.
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