Q89 – How Do I Evaluate A Potential RIA To Join?

Also available as podcast (Episode #89)

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How Do I Evaluate A Potential RIA To Join?

There are multiple pathways to transition your practice to the RIA model.  If you determine that joining an RIA is the best fit for your practice, you next need to determine how to evaluate potential RIAs.  There are several firm types to choose from including W2, 1099, acquisition, hybrid, etc.  It is important to understand 1) what the table stakes are that you can expect from every RIA offering, 2) what the differentiators are between solutions, 3) how to conduct due diligence on it all.

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Full Transcript:

Brad: How do I evaluate a potential RIA to join? That is today’s question on the Transition To RIA question and answer series. It is episode #89.

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 to the RIA model.

If you’re not already there, head to TransitionToRIA.com, to 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 resources to help you better understand the RIA model.

On today’s episode, for those that are watching by video, we have a very special guest, the one and only Penny Phillips with Journey Strategic Wealth. Penny, thank you for coming on.

Penny: Thank you for having me. This is awesome.

Brad: I look forward to the conversation for sure. I’ll ask Penny to give a little background on herself in a second. But for those that don’t know Penny, and most of you will already know her, one of the things I am excited about having her on and was excited when I first met her is, as I try to do in the industry, and Penny’s got me beat by a mile, is the amount of education and content she puts out to help financial advisors on all facets of running a practice is incredible.

She gives back to the industry. She’s at conferences, webinars, podcasts, coming on shows like this. So, Penny, you’re the best person for today’s topic, and I appreciate all that you do for the industry and appreciate you offering to come on today as well.

On many of these episodes I discuss the differences between starting your own RIA, vs joining an existing firm. There are pros and cons to the different approaches.

If you have concluded that joining an existing RIA is perhaps your best path, the next variable to solve for is how do you evaluate RIAs to potentially join?

There are over 30,000 RIAs in the marketplace. All of them are not looking to attract advisors. And then there’s a lot that are looking to attract advisors and arguably don’t have very good value propositions.

If you find some that might be a good fit, though, how do you evaluate them? That’s what we’re going to talk about today.

Before we dive in, Penny, if you could, for those that don’t already know you, give a brief background on yourself and your firm.

Penny: Absolutely. So glad to be here. Perfect topic, by the way. We were just talking about this. You know I love this topic.

I’ve spent my entire career coaching and consulting within the industry, which I know is sort of unique. I was consulting advisors and institutions around practice management, initially in-house for firms.

I’ve worked at firms like Envestnet. I started my career in the captive insurance broker-dealer space, helping firms build internal corporate RIAs. And then, ultimately, I went out on my own, launched a consulting business called Thrivos Consulting, where, like you, I was helping advisors understand the independent space, move to independence, drive enterprise value, and ultimately monetize their independent businesses.

A couple of years ago, I made another transition and launched an RIA with a couple of partners. And the reason, Brad, which is going to tie into our conversation today, is because, in my consulting engagements, I found that advisors were uneducated, and it’s the industry’s fault, by the way, on the options that existed to them in the RIA and independent space.

I talked to a lot of advisors who’d leave a wirehouse or a broker-dealer, go RIA, think that they were going to have all their problems solved for, and then get to the RIA and say, “Gosh, this actually isn’t really what I wanted,” or, “Gosh, I’m stuck in a deal that I wish I wasn’t stuck in.” I made it my mission to make sure that never happens again.

I built an RIA aggregator with a couple of partners that I think represents the advisory firm of the future. I know we’ll get into that a little bit today.

Brad: I think it’s great you didn’t jump straight into launching the RIA. You didn’t jump to the end of your career without that background. You knew first what advisors were looking for. You knew the questions they were asking. So, natural progression and good job putting all that knowledge to use.

I’m excited to go through some questions with you. We’ll dive into more of Journey at the end as well so everyone can learn more about the specific offering.

To start with, we’ll get into what some of the differentiators are in moment – and we’ll assume we’re talking about RIAs with at least a reasonably good value propositions – but what are the table stakes that any RIA that an advisor might consider joining should be providing?

Penny: All these questions you’re going to ask me have so many different answers. So, I’m going to try to break it down as simply as possible.

When you’re leaving the, let’s call it, broker-dealer or wirehouse space to go RIA and you’re joining an RIA, what you can expect to get at the absolute minimum is, number one, compliance oversight. And, again, there’s some differentiators in this, and I’ll talk about platform provider RIAs versus just pure RIAs. But for the most part, if you’re joining an RIA, you’re going to get compliance oversight.

You’re probably going to get access to HR resources. You’re probably going to get access to what I call core infrastructure. You’re not going to have to create an investment model management system from scratch. You’re not going to have to figure out what trading platform am I using or what financial planning software am I using.

Now, some RIAs give you options for all these things I’m going to talk about, but, for the most part, when you’re joining an RIA, you are not going to have to go out and build from scratch.

Now, the difference if you’re launching an RIA versus joining, and this is how you can really understand table stakes is, if you’re launching your own firm, you have to go out to the independent fintech landscape and look at all the different options that we have from a technology standpoint, from an outsource compliance standpoint and sort of figure out how to put everything together to build a firm.

A firm that you join is going to have done that already. And your role within that firm obviously differs, and we’ll talk about that. But that’s what you can expect. Basic infrastructure and basic operations, compliance, usually HR, and sort of CIO services.

Brad: Tech was a perfect example. The wonderful thing about the RIA ecosystem is there’s literally hundreds of fintech vendors out there. The challenging thing about the RIA ecosystem is there’s hundreds of fintech vendors out there. So, it’s great there’s flexibility, but it can be daunting to figure out best-in-breed and what works best together. So, a perfect example of what a good RIA solution will bring together.

I should have said this before we jumped in, what we’re referring to regarding joining an RIA, is not just some RIA down the street that happens to have an empty desk in the corner that would love to have you come sit in it. That typically does exist. If you can find someone you’ve built a good relationship with, have at it.

What we’re talking about here are firms that were purpose-built to address the needs and demands of advisors. So, just wanted to clarify.

When we go beyond the table stakes, let’s say we’ve narrowed the field, we’re only looking at ones that hopefully are at least doing the table stakes. And there’s still a lot of them. So, how as an advisor should they look at, whether it’s a firm like Journey or whatnot, to say, “How are you different from this firm or this firm?”

And I would caution folks, as you surely know, Penny, there’s confusion out there with terminology used. Some firms would call themselves a hybrid firm, an aggregator firm, whatever. And they’re speaking different languages with how they’re using the terms.

Ok, with table stakes set in place, how do we begin to say, “How are these different? Why I might choose one over the other?”

Penny: What might be helpful in sort of guiding these comments is I want everyone to imagine the choices that exist along a spectrum. And that spectrum, it’s really the amount of control you have over decision-making.

On one side, there’s launching your own RIA. Which candidly, Brad, I don’t recommend for 90% of advisors out there. Ten years ago, I might have had a different answer, but it’s become increasingly more expensive to run these businesses. Compliance has changed. We’re regulated by the SEC, and the numbers don’t work as much anymore.

A lot of that has to do with private equity money coming into our space. To make a long story short, the industry’s favoring the larger institutions because we have scale, we get price breaks, etc.

But here’s the spectrum. Launching your own RIA, you have total control, also total risk and responsibility. All the way on the other side is you join an RIA, you get access to all the table stake stuff, all the other stuff. But to some extent, you lose your identity.

Usually, on the other side of the spectrum, you’re selling your business to a firm like Mercer or Focus. Great firms, by the way. They do everything for you. You become an employee of that organization. You’re still at an RIA, but you have very, very little control over resources and theoretically your destiny.

Now, what we’re talking about is everything in-between. The in-betweens are called either aggregators or consolidators. The terminology sort of is irrelevant, but what you can know about that is, within that spectrum, you are going to have access to different levels of resources.

Some firms, like we said, are going to offer you just the table stakes. And then it’s your responsibility to go out, build your own brand name, do your own marketing, essentially run your own firm. Yes, you’re going to have access to all the outsourced resources, the compliance, the HR, the outsourced open architecture investment management platform. But you have to plug in the gaps and really build.

I will tell you, most advisors who are disappointed at the move to RIA go to a structure like that and then realize, “Oh my gosh, this is so similar to being at, name the broker-dealer, and still having to run my own business and still hitting capacity and still having margins compress year after year because I can’t gain scale and capacity.”

I want folks to know, going to a place where you’re going to have to do a lot of the same things on a day-to-day basis you were doing before, you’re going to have a similar experience.

Now, what’s positive about joining an RIA like that? If you’ve come from a captive environment, you’re going to notice that technology is going to be better. And I’ll put an asterisk because I’ll get to the technology, my rub with technology, but technology is going to be better and more impressive to you.

The way of doing business is going to be, and this is anecdotal, easier. Most folks that are considering this transition to RIA are coming from a wirehouse or a broker-dealer where they’re not allowed to charge fees a certain way. They’re not allowed to post on social media. They have the home office breathing down their neck, and they’ve really outgrown the system.

I have found coaching thousands of advisors and now running an RIA with 9 advisory teams and $3 billion in AUM, everybody agrees, the ease of doing business, it’s there.

When you’re regulated by the SEC as an RIA, I always say it’s not FINRA regulations. Compliance is a major part of our business, but it’s a more, I would say, logical and modern approach to supporting advisors in doing business the way the consumer wants to engage with the advisor.

So, the experience is going to be slightly better, but you still must run your own sort of thing.

Now, the other option along that spectrum is the firm like Journey, let’s say, and there are tons of other firms out there that are similar to us, although we have some extremely unique differentiators.

Our firm says, “We’re going to offer you the table stakes, but we’re going to also help you run the business.” We are going to help you put the tech together. We’re going to make sure that data is flowing efficiently. We’re going to take care of investment management for you. We’re going to trade for you. We’re going to do performance reporting and billing because we don’t want you to do any of the operational or admin stuff.

My final thought on this note is that the most critical question an advisor can ask themselves before they move, two things. What are the things I never want to do again? What are my biggest pain points? And what are the resources I’m going to need now and five years from now based on what my vision is for the business?

Most advisors think that technology and investment management services are a differentiator. I will tell you, they are not. All of us RIAs have access to the same tech. If a firm is telling you, “Our tech is the best,” they’re lying to you. If a firm is telling you, “Our investment management strategy is the best,” they’re not being truthful.

The reality is, the differentiators between these different RIAs depends on how much does the advisor want to be an operator versus an advisor? That’s really when we can get down to what’s the right model for an advisor.

Brad: A lot of great points on that. It was a loaded question. I think you did a great job answering, and I know you could extrapolate another 40 minutes on that question alone. These are cookie cutter solutions out there, but there are differentiators too.

It’s worth noting there are a lot of misconceptions out there. You might think, “If I were to join an RIA, I have to sell my firm or I will have worse technology.”

I often say, the RIA model is not for everyone. I’m not sitting here saying it’s going to be a better solution for everyone. However, for most, it is. And so, if you’re saying to yourself, “I don’t even want to explore that because of X,” perhaps that’s correct, but it behooves you to at least learn more and understand.

I have come across folks that think it is just the option of the RIA down the street with a desk in the corner, or that you must sell your practice. You might be at a place in your career where selling your practice is the step you need to take. There’s nothing wrong with that. But if you’re not at that point, just know that that does not exclude some wonderful options out there.

Let’s say you’ve a found a firm that provides the tables takes, has some differentiators, and you want to learn more about them. The devil’s in the details. You have a unique practice. You need to see how the firm works.

We’ll use you as a live example. If someone reaches out to you and says, “Penny, I saw you on Brad’s show. I’d like to learn more about Journey.” What does that first conversation entail, to help prep advisors for that call?

Penny: It’s a great question. The first conversation, and this is not unique to Journey, is a sort of introductory conversation where both parties are trying to solve two objectives.

Number one, what is it that the advisor is deeply looking for?

And I caution every advisor, if you’re having a conversation with a firm, and within the first conversation, they’re talking about money that they can offer you and deal structure, just know that is reflective of the culture of the organization.

The first call should be, what is it that is, I always say, disturbing you enough to have a conversation with me? What is it that is making you feel like, “Okay, now might be the time for me to sort of take the next step?” So, understanding the psyche of the advisor, the firm that you’re talking to should be doing that in the initial call.

On the flip side, you should leave that call with an understanding of the basic value proposition of the RIA, and how that fits into the greater RIA landscape.

We try to explain to advisors, “Here’s our model. Here’s why we believe this model makes sense for advisors like you. And here’s how it’s slightly different from what you might be used to in terms of options that are available in the RIA space.”

So, a basic understanding of why we’re doing this, why it’s structured like this. And on the flip side, an understanding of where the advisors at, what they’re feeling, what they’re thinking, and really what they need in order to make a powerful decision moving forward.

Brad: If it wasn’t obvious from Penny’s response, this is not a one-call process by any stretch of the imagination. It is the first call that starts the process.

Someone like you who’s had countless of these calls can guide the ship as needed for an advisor, and you know the kinds of things they probably should be asking or that they probably should be aware of in that first call. But not everyone is as versed as you are.

For an advisor that’s calling whoever has a solution, what are some specific questions, again, on that first call, that an advisor should probably be asking to make sure that this is worthwhile continuing the conversation?

Worrying about how the fee-billing process works is irrelevant on that first call. What are the big things to ask to be able to say, “Okay, this is worth me having a second call.”

Penny: Great question. A couple of things.

Number one, a basic understanding of their core resources. Ask the firm, “What do you consider to be the table stake resources and then the value add resources of the firm?”

The reason that question is really important is because, at the end of this engagement, you’re going to get a term sheet with a payout structure usually. It’s really important for you to make sure that the services and value add that you’re getting from the firm are commensurate with the amount that you are giving up to join the RIA. No matter what, you’re giving up some basis points or some revenue to join a firm.

Number one reason why people leave their firm, by the way, whether it’s a captive system or a wire, they no longer feel they’re getting the value they deserve given the revenue they’re giving up.

Solidifying that and having somebody explain that to you in sort of bullet point format, really important.

Other things that are really important to ask, be upfront about what your current pain points are, whether that’s compliance, whether that’s enterprise value of your firm, whether that’s you want to buy books of business and you’re unable to do that within the captive system that you’re in.

Whatever it is, bring those to the table and ask the RIA, “How would you help me solve for these? How do you alleviate my top pain points?” If they are unable to answer that effectively or have no answer at all, it’s likely that there’s going to be a mismatch somewhere down the line.

The last thing I’ll say is, and maybe this isn’t a first call, but most RIAs – we are an exception because we are still a boutique firm – most of the time, for the big national aggregators, you’re talking to the firm’s best salesperson. You’re not talking to the people you’re going to be engaging with daily, the people who are going to be problem-solving for you. Ask for a list of who those people are, and make sure you get on a call with them or a Zoom and figure out if, A, you have synergy and, B, you trust their judgment in helping you solve problems.

Brad: Yeah, that’s a great point. I tell people don’t either fall in love with the person you’re talking to or dislike the person you’re talking to. Because they’re only going to play a part, and sometimes it’s only the beginning of the engagement. You’re going to be dealing with these other folks much more over the duration of the relationship.

Penny: That’s exactly right.

Brad: Next, what about economics? It might not typically come up in the first conversation, but it is relevant. In the corporate world, if you sit down for a job interview, in the first two minutes of the interview, you don’t ask what the salary is. But at some point you need to make sure you’re on the same page. When is it appropriate to bring it up?

And as Penny noted, price alone is meaningless. It’s the price for the value you receive. There are solutions out there that are dirt cheap. I’ve had advisors at those solutions that have reached out to me and they’re complaining they’re not getting much from their firm. I ask them what they are paying, and it is ridiculously low. I say, “Well, what do you expect?” Your firm has costs. They have risk. They must make a profit.

Penny: That’s right.

Brad: So, when is it appropriate, or how should it come up in conversation about how the economics would work?

Penny: I could go on a soapbox about what you just said before the question.

Keep in mind that firms that are offering you a very high payout, which the industry has taught advisors, go for the 94% payout. That is irrelevant in our space. When you are an RIA business owner in the RIA space, what you should care about is net take-home pay.

Forget the high payout because know that you’re going to have to run a very expensive business underneath that gross number. To your point, again, if it’s a very high payout, know that the firm is marking up technology that you could theoretically access cheaper so that they can make margin.

Everybody must make some money in this business. Know that, with that (low cost) structure, it is unlikely that you are going to get ongoing service and attention from the RIA on an ongoing basis because their business model is not designed to support that ongoing consulting.

I say this to advisors, it is your experience. You are in control of the experience. If you want to ask, “What is the economic structure? Give me an example of what a term sheet looks like,” in the first call, it is your right to do so.

We’ve gotten to a place where the power – and part of why we launched Journey – the power almost sits in the acquirer’s hands now or the aggregator’s hands. They’re saying, “We’ll buy your business, or this is what you should be doing, or this is what every advisor’s doing.”

I want advisors to take the time to define success for themselves and recognize that they have all the leverage. If you want to ask about it in the first call, you should be able to. If the RIA says, “Well, we can’t really get into that,” they should be able to

It’s just like if a potential client asks, “What do you charge?” Do you want them to ask that right off the bat? No. But if they ask that, do you have an eloquent and fair answer to that? Absolutely.

Brad: If someone dodges the question entirely, then that’s probably all you need to know right there. They should be able to give you some initial context.

By the way, with respect to broker-dealers with high payouts, I equate that to resort fees at hotels. Hotels have these room rates, which is what you see when you go on hotels.com or whatever, you only see the room rate. They’re trying to be competitive with each other.

But then there’s also some mandatory resort fee that gets added later. At the end of the day, you don’t care what they call it. Call it a resort fee, call it a room rate, all that matters is how much are pay in total.

We see that game played with a lot of broker-dealers. They have seemingly high payout rates, but then there’s some 25 basis point platform fee added on as well.

You must consider what flows to your pocket. The client doesn’t care who gets what. They just know they’re paying something, and getting some level of value in return. Point being, there are nuances to “payouts.”

So, an advisor has reached out for that first call. And by the way, Penny, tell me if you would concur. An advisor will often be able to get to a quick no in their head (about a firm.)

If you have a conversation, and it’s not a seemingly good fit, it’s easy to get to a quick no of, “Is this a solution for me?” The yes can and should take a while because there’s a lot of things to go through. So, don’t be afraid of getting to a quick no and not wasting your time.

Penny: Absolutely.

Brad: Along those lines, let’s say that first call went relatively well. I’m the advisor, you and I spoke, it makes sense to continue. What can I expect to happen next in this process and in the weeks or months to follow? How does that play out?

Penny: Yeah, and, by the way, for us specifically, and this is in many cases, the no’s, they tend to be tied to things like investment management philosophy, which is important. If you want to manage portfolios, you’re an investment manager by trade, we can have a whole other webinar on that.

Your active management style, and the firm philosophically doesn’t manage money that way or can’t support you in doing that. That’s sort of an immediate no.

If you cannot imagine giving up control over things like your bookkeeping, or you want to be the CCO of the firm, the chief compliance officer, and the firm, again, philosophically has a different perspective on what an advisor should be doing, you can immediately say, “This isn’t the firm for me.”

Now, assuming it’s a yes, what you can expect moving forward, a couple of things.

The firm should be taking you through a deep dive within all the areas of service that they offer. If the firm is just offering you access to baseline resources, it’s a different set of conversations, but those conversations should include demoing the systems, giving you a sense of the look and feel of the experience of engaging with whatever their tech platform is or whatever their sort of resources are.

If you’re getting more of the full-fledged experience from an RIA, which by the way is where the industry’s moving, the bigger firms, the advisors are realizing, “I don’t really want to build my own thing. I want to join a firm, get all the benefits, get the economic benefits of being part of a bigger organization,” then it’s our responsibility to educate advisors on everything….operations, investment management, practice management, marketing, human capital.

I’m obviously biased towards my firm, but this is where having people who have experience not just in advising successfully, our management team is made up of advisors and former consultants, but folks that can define practice management in the way an advisor would and take you through how they support you in each of those areas.

Client experience is one that I missed.

The calls that you do should mimic each of those areas. By the time you’re done, you have a full view of what it’s going to feel like and be like being with that firm on a daily, monthly, quarterly, annual basis.

Now, at some point during that process, you are going to likely have to give a P&L to the firm. If you are looking to de-risk or monetize or sell a portion or all of your business, you’re going to have to give your financials. The firm is likely going to do a valuation.

A lot of times those things happen concurrently. And so, be mindful of that as well because they are going to ask you for a lot of financial information so that they can put a fair market value on your business if that is a direction you’re moving.

Brad: That first call is important to make sure, is it worth continuing the conversation? You don’t go on a first date with someone and immediately need to know their water bill every month. Those are details that might be relevant eventually, but not right away.

Penny: Right. Right. Right.

Brad: If an advisor has found a potential good solution, I know there’s exceptions, but roughly how much time is needed from start to finish with this whole process? How do you usually counsel people to commit to making that work?

Penny: There’s so many answers to this. We’ve done it in 30 days. We’ve done it in one year.

What I tell advisors realistically, start to finish, give yourself six months of time. Now, even within that six months of time, be patient with yourself around the initial discovery process. I know advisors who took six months just to talk to different firms and then another six months to really schedule out and feel comfortable with a transition.

What tends to happen though, and the reason I say six months, is once you start having conversations with firms, you start to get a clearer picture of who you like, which type of people you align with, which firms are a definite no, and the process sort of happens quicker. Anecdotally, of course, but I’ve heard this from many advisors.

Once you start dipping your toe, the process starts to pick up in pace, give yourself six months of time. I think that’s realistic.

But this is where joining a bigger firm is sometimes more favorable. And it’s why the larger firms are getting bigger. It’s because they have scale. It’s because they have resources, and it’s because they have capital. So, realistically, a firm like Journey can buy an advisor’s practice, can structure a deal as quickly or slowly as an advisor needs to.

That’s another important question, by the way, to think about during this process, what resources am I going to need five years from now?

If you think in five years you’re going to want to start thinking about a succession plan, and you’re with a firm that doesn’t have a strong balance sheet or isn’t private equity backed, guess what? There’s no succession plan. You’re going to have to go somewhere else, or you’re going to have to figure out a deal internally.

And so, things like that, advisors don’t often think about. A lot of times, that’s why the larger firms are a better option.

Brad: You don’t want to be the guinea pig as the advisor. You want to know that this is a well-oiled process where a lot of advisors have come before you with it.

Regarding time, I agree with you, under the necessary circumstances, it can be truncated. I do like your six months though. That’s typically what I usually quote as well.

And then I would point out for advisors, and I’ve ranted about this on episodes before, so some of you have heard this, but don’t arbitrarily make the process any longer than it needs to be by kicking the can.

If you like the vision you’re now considering and you like the solution you’re exploring, you’re going to start getting excited about that. If anything at your current firm bugs you now, it is going to bug you times 10X more, because you know the new path is waiting for you, and you’re just going to get more and more aggravated.

If you arbitrarily make that process longer, it’s just going to cause aggravation. And, Penny, maybe you could opine on this real quick, a challenge too, once you start making that transition, at some point, you will take your foot off the gas of trying to…

Penny: A hundred percent.

Brad: …onboard new clients, because you don’t want to come back to them a month later having to move their account again.

How do you usually frame that? Like, “Hey, get on with it, and that’s why you need to make a change?” Or how do you set expectations there?

Penny: A lot of it, it’s mindset stuff. And advisors know this. They’ve been entrepreneurs to some extent for a long time. So, a lot of this is just staying focused and knowing no matter what decision you make, there are going to be challenges along the way.

I will tell you, I’ve never met an advisor who regretted going RIA. I’ve met advisors who’ve said, “Maybe this wasn’t the best choice,” and then have jumped to a different RIA. And there’s plenty of that, by the way. But I’ve never met somebody who said, “We made this move from X, Y, Z captive firm, and we regret it,” ever.

But know that it’s going to be sort of challenging and stressful. If you’re really stuck between two options, the differentiator in so many cases should come down to the people you’re going to be dealing with, honestly.

At the end of the day, if you’re joining firms where maybe one’s resources are a little bit better, but the other one has something else that you like, keep in mind that just like anything else, you’re going to be dealing with people on a daily basis.

You want people who can problem solve. You want people who have high emotional intelligence and empathy, and you want people that really understand the industry. Because the industry is changing so quickly, not just from a technology standpoint but from a pricing standpoint, from a deal-making standpoint.

Having a firm that really has your back in terms of educating you on what’s happening in the industry you’re in, that is really, really important. So, a lot of times it comes down to the people.

Brad: I agree 100%. I had a guy I worked with years ago, and he would say, there will always be change. Whether it’s 5 years from now, 10 years from now, 15. There could be regulatory changes, who knows what that change will be.

So, you want to associate yourself with people that you feel will make the best decisions in your interest when that change comes. None of us know what the change will be, but you do know who your dance partner is that will hopefully best help you navigate through it.

I know it’s cliche at times to say it’s all about people, culture, whatever, but it is what it is. That’s who’s going to be your dance partner. And it’s very important.

Penny: Absolutely.

I would say meet with them, have a meal with them. I know a lot of advisors….it’s the red shiny object syndrome. Whether the firm is flying you on a private plane or offering you X, Y, Z money.

By the way, if firms are offering you money, they’re either buying a stake of your business or it’s a forgivable note. A lot of times advisors are like, “We’re getting $1 million.” I’m like, “You’re not getting $1 million free.” Make sure you know what comes along with that.

The last thing I’ll say is, if a firm is offering you resources, and I’m very critical of this as a practice management sort of expert, if someone is saying, “We offer practice management resources,” ask them what that means.

Usually, that doesn’t mean anything. It means they’re posting a couple of videos, and maybe every once in a while they have a relationship manager calling you.

If you are somebody who wants to access those resources from a firm, who wants help making decisions about the business, what should I be charging, who should I be hiring, what should I be paying them, ask them to explain what practice management resources means.

For us, it is proactive, meaning we are actively engaging in consulting and coaching engagements with our own advisors, which is a major differentiator, and it’s a gap that we saw in the industry.

Brad: It reminds me of when surveys are done of advisors about what makes their practices unique. All too often, the number one response is, “we have great service.”

Guess what….everyone says that! Whether they have great service or not, everyone says they do, but who is doing it?

Most firms will say they have practice management support. And if that’s the extent of the conversation, just know that you haven’t answered anything. You might as well not even ask the question. You must dig deeper as Penny said.

Penny: That’s right. Ask them to define it. If somebody says, “We offer great service,” ask them, “How does that manifest in your interactions with me as an advisor of your firm?”

The best in the business will have service standards. We do. If somebody says, “You guys say your operations team and service is best in class. What does that mean?” We have very specific standards for what that means in terms of communication time, in terms of how we communicate with advisors, in terms of when we communicate.

Don’t be afraid to ask. This is a huge life-changing decision to some extent, most of the times for the better. Put the responsibility on the firm to show you what they have.

Brad: Yep, they need to demonstrate it and get into the weeds.

I love these topics. I love your commentary. We could talk about this for hours. So, this is by no means covering anything and everything that could be discussed on this subject.

But the last thing I wanted to cover, because it’s so important, if an advisor concludes that joining an RIA is the path that’s best for them, they’ve done all this work, they’ve done this six months, they’ve found the right partner….none of that matters if the transition is not successful.

What can an advisor expect from a firm to help them with the transition? I’m not talking money, we’re talking the resources to logistically help the advisor successfully move their clients. What can be expected?

Penny: I’m nodding so much, my head’s falling off because this is huge. And I would say this should be a major conversation point when you’re vetting different firms.

Transitions are not fun. Any firm that tells you there, “It’s going to be great, and everything’s going to go perfectly, and you’re going to have no stress,” is not being truthful. Even the best in the business, the firms that put a whole lot of emphasis on helping with the transition, it is still stressful.

Understanding how much a firm steps in to help, critically important just like the conversations we were just having before. Ask them to literally list out what they do for you.

In a best-case scenario, a firm like Journey and many of the other aggregators and consolidators, will do everything for you, everything from the actual paperwork to open accounts.

We are one of the exceptions. We will actually do that. The advisor doesn’t touch a piece of paperwork at all whatsoever. They’re not in the custodial portal.

Some firms will help with organizing data, get you ready to go, but then it’s your responsibility to send out the wealth management agreements and the new applications.

Best-case scenario is you’re joining a firm that is helping you figure out which custodian to go to. That’s another major decision, by the way. If you must repaper, major decision. A firm that’s going to advocate for you if you don’t have to repaper, a firm that’s going to handle getting transition costs covered.

A lot of times custodians will pay for certain services, whether it’s legal services or whatever, if advisors are joining. So, having a firm help you with all of that.

And then, taking it a step further, the firm should help advisors, and we do, with the communication plan.

How are we communicating the transition to clients? Are we saying something different to certain households that have specific sensitivities? We will go so far as to write the talk scripts. We record the videos. We help the advisor do a book of business analysis where we’re saying, “Hey, here’s an opportunity for you to gain a little bit of margin when you come here, raise your fees but have the client pay the same or less.”

Now, that might sound odd, but a lot of times when an advisor is leaving a broker-dealer, there isn’t the platform fee anymore. There’s an opportunity for them to make more revenue and charge the client the same or less. So, having a firm that’s helping you do all that pre-work so that when you start, your book of business is organized, your fee structure’s organized, and you have a plan for getting money over in 30 days. You want a firm that’s going to give you the concierge white glove type of transition engagement.

Brad: That’s the exact same example we talked about with practice management or service. You can’t just ask, “Do you have good transition support?” The answer is yes from every RIA that is out there. You must go well beyond that, and Penny didn’t cover everything that could be talked about with that, but those are some of the main points.

Transition support is a very relevant part of, can this firm support me? It’s telling too, if the firm doesn’t have a solid mechanism to help you move over, how are they going to have a solid mechanism to help you grow and solve your client needs going forward.

To wrap up…through our conversation here, listeners have been able to get an initial idea of the Journey story. But please give us the proverbial elevator pitch. Where might Journey be worth that first conversation?

And if you could also share your contact information, we’ll put it in the show notes.

Penny: Absolutely. You can find me anywhere on LinkedIn, any social channels, Penny Phillips. But our website is journeyswadvisor.com, Journey Strategic Wealth.

What we were trying to solve for in the industry, Brad, was this idea that advisors… I’ll say it this way, the way the industry has defined success for advisors is they need to transition to CEO at some point and run and operate this big business, go out on their own.

I’ve found most advisors really enjoy being advisors, and they want to go independent, and they want to go RIA, but they recognize that they don’t really want to run a business. But the only option for them is to have to join another organization and maybe give up equity and give up control. And they don’t want to do that either.

Our model is perfect for the advisor who wants to advise, who wants to spend 80% or more of their time working with clients or business development and still wants to own equity, still wants to own their clients, doesn’t want to feel like they’re restricted by a home office and can’t ever leave or be handcuffed.

We have no restrictive covenants in our contracts, which is very, very rare, meaning a team can leave us at any time. But it’s our responsibility to keep advisors happy and give them the resources they need to continue to grow and build businesses and spend most of their time with clients.

Brad: You’re essentially saying, “Hey, advisors, you’re a free agent. We must work hard to retain your business, not because there’s some arbitrary guardrails to lock you in.” Unfortunately, there are a lot of models in the industry, which that is what they do.

I encourage anyone where this has maybe resonated to reach out to Penny. Again, we’ll add contact info in the show notes. If you head to TransitionToRIA.com, it’s episode #89.

Penny, I love your passion for this. This is exactly what I expected on this episode. I’ve seen you so many times and obviously our one-on-one conversations. I know you’re passionate about it, so thank you for coming on and sharing your knowledge.

Again, we only scratched the surface here, but I hope it’s been valuable for those listening along.

Thank you, Penny, for coming on.

Penny: Thank you so much.

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