Also available as podcast (Episode #49)

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How long does it take to transition to the RIA model?

If you are an experienced financial advisor with a current clientele, the amount of time it takes from first exploring the model, to when you open for business, can generally be accomplished in 2-5 months.  This is less than the 6-9 month timeframe I historically would quote, as new industry solutions have made it possible to significantly shorten the time it takes to get started.  Delays beyond a 2-5 month window are often times more related to the simple inertia of taking next steps.

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Full Transcript:

How long does it take to transition to the RIA model? That is today’s question on the Transition To RIA question and answer series. It is episode #49.

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.

On today’s question, this is something I’ve been putting a lot of thought to recently, and it is an evergreen question that comes up all the time, but I wanted to make an entire episode on this because I think it is something that most advisors are asking, most advisors want to better understand.

If it makes sense for me (as an advisor) to go into the RIA model – and again, that’s something I help advisors think through all of those variables that go into that sort of decision – but if it makes sense for me to do that, how long does that process take from start to finish for me to transition into the model?

I’ll preface this by saying I did a prior episode – it is episode #5, where I spoke more on a narrow basis of how long does the actual registration process for a new RIA take?  I’ll touch on that here in a second, but if you want to dive more into that narrow part of this overall question again, check out episode #5. I dove into that further.

This episode is more on the overall process of beginning the first conversation to when you’re over the proverbial hump on the other side.

Historically I would generally give the answer – and I’ll preface this by saying there’s so many variables involved in every unique advisor situation that one size fits all answers are hard to come by. And so I ideally don’t like generalizing, but the same time I get it, people want an answer at least to begin thinking this sort of thing through with. But just know, each situation is unique, it could be different.

Traditionally, six to nine months is typically what I would say for how long it would all take. And the reality is, not only has my thinking on this evolved, but in large part, it’s a result of the marketplace evolving and the solutions that advisors are using that has made it possible to evolve.

Now, if I’m asked that question, the answer I’m giving is more along the lines of two to five months.  So not six to nine months or even longer, but more two to five months.

You might be thinking, “Wow, that’s a lot shorter. That’s a lot quicker. Is that really possible?” That’s what I’m going to talk about on this episode here. Why I’m firmly more on the two to five-month camp and where in most cases that is possible for advisors to achieve.

I’ll start by saying a lot of what will determine the amount of time it will take to transition is what pathway into the model you take. It’s beyond the scope of this particular episode – I’ve done other topics on it, I’ll link to those in the show notes – but the idea is there’s three main ways into the RIA model.

You can start your own RIA on one end of the spectrum. On the other end of the spectrum, you can join an existing RIA. And in the middle is where you start your own RIA, but utilize the services of a so-called middle office provider to help you with the bulk of the responsibilities of starting your firm up.

There are pros and cons to all of those. Like I said, I did a whole episode on it. For one advisor, one model works great, and another advisor entirely different, one of the other models works better. It’s not to say that one is better than the other. It is based on the individual circumstances of each advisor.

But the reality is, it depends on which of those paths you take will also impact how long this process takes. So keep that in mind, kind of at a macro level.

As for what goes into the amount of time it takes – this two to five months – the best way I can think to describe it is as action steps and that you have hard and soft action steps. And I’ll tell you what I mean by that.

Hard action steps, those are things that are necessary logistical steps of moving into the model that have to be done. You have participation in that, and oftentimes you’re relying on other people, whether it’s vendors you’ve hired to help you with it or regulators in the case of registering your RIA.

Some examples of that, a hard action step is registering your RIA – if you go down the path where you’re going to have your own RIA. Again, episode #5, you can get more details on it.

But in a nutshell, the registration process alone typically takes 45 to 90 days. Now, some of that’s work you’re putting into it. Some of that’s the compliance consulting firm you’re working with – I’ve done all kinds of episodes on how you work with those folks. They help you set it up. And then part of it is waiting for the regulators to approve the registration.

Again, that’s what I call hard action step. Those are logistical steps that have to be done and some of it’s out of your control of how quickly that can get done.

Now, as you go through these steps, mind you, it’s not like you only work on one thing at a time. You would certainly want to work on multiple of these steps simultaneously, so you don’t wait for that 45 to 90 days before you begin the next thing.

Don’t be intimidated by any of this. This is what I help advisors with every single day of what these processes are for transitioning into the RIA model.

Another example of a hard action step is an office lease. If you intend on having an office, as most advisors do, there are steps involved in that. Sourcing the real estate, negotiating the lease, getting the keys to the door, etc.

With COVID, that’s kind of accelerated the whole process because there are a large number of advisors that at least initially are not afraid of moving forward with launching their firm in a virtual capacity. Because perhaps their clients don’t even want to come in and see them just yet. And so, if they are still building out their office space or sourcing office space, their clients don’t at all mind doing everything virtually for now.

Time will tell, but for some clients, some firms, it might be virtual in perpetuity. A by-product of the whole COVID crisis is that the office situation no longer slows things down as much.

Another example of a hard action step is sourcing the technology solutions you’re going to utilize. That’s quite different if you want to start your own RIA firm versus joining an existing RIA firm. Either way there’s steps that need to be done.

You need to understand the options, do your due diligence on them, make sure you like what would be provided/available to you, etc.

Those are examples of hard action steps. They take time. There’s only so much you can do to speed those up even with the best of intentions.

The flip side of hard action steps, what I call soft action steps. And quite frankly, that is primarily inertia. To put it bluntly, “Kicking the can.”

You have the hard steps. The things that have to be done. Some of that’s out of your control, how quickly you can do it. What is in your control though is simply moving forward and working through those steps.

There’s countless times I’ve come across an advisor who says, “Okay, this (a move to the RIA model) makes sense for me. I understand it. I understand all my options. I’ve figured out which path I want to use.” Then I’ll ask… “when do you want to make the transition?”

And sometimes the quick response is, “I’m going to do it later this year,” or, “I want to aim for early next year.” Oftentimes when I challenge that, there’s not necessarily a good explanation for that, except for it’s scary, there’s anxiety, so it’s just easier to push it out some.

I’m going to give a couple of reasons here in a moment of why you don’t want to arbitrarily push it out. But that is a prevalent thing here. And so with my prior six to nine months, my thinking evolved to realize that a lot of what was taking six to nine months was more that inertia piece, those soft action steps. That can be managed as long as you’re willing to move yourself through the process, not stretch it out, not arbitrarily kick the can, not arbitrarily push it out.

Now, there are some examples that I’m going to dive into here in a second, where you do need to be careful about certain things. You don’t want to resign the day before Christmas, as an example. Or maybe you’re still on a retention bonus that you received at your firm, or there is a join bonus that you received X numbers of years ago, and maybe there’s one or two years left on it. So you kind of mentally think, “I need to let that run out first.”

I’m going to give you some thoughts on that, but there are some issues that are a little more blurred. But a lot of it is just that kicking the can, for lack of a better term.

I challenge you to think about that. If you go through this process, you start mapping out a timeline and how much is those hard action steps and how much is the soft action steps?

I’m not trying to be critical on this because I’ve experienced this myself with launching my own firm. I know it’s not a perfect analogy because what I do with my firm is not exactly the same as an advisor going independent and launching their own firm.

But the reality is, I worked in a W-2 employee environment for nearly 20 years. Where every 2 weeks my paycheck would arrive, and my health insurance would automatically renew every year, I was given an office, etc. I was in a home office corporate environment.

When I decided I wanted to launch my own firm, which I’ve done with Transition To RIA, I get it, it is scary. There is anxiety. There is a lot of pressure on yourself. You have to get it all figured out. You have to make it work. You have a family. Those sorts of things.

I get it firsthand that it’s easy to sometimes kick that can and to push it back. And arguably I probably kicked that can longer than I needed to before I finally pulled the plug.

Part of why I launched my own firm is I realized I was being hypocritical. I used to be in a business development role with a custodian. I was teaching advisors the same sort of things I teach under my firm. How you should make this move (into RIA model) and you should leave the firm you’ve been at forever and you’re comfortable at.

It’s a scary step to take. When I was still myself in that W-2 environment and the comfort and the security of everything that came with it, it was being hypocritical for me to be telling advisors, “Oh yeah, you should go do that. You should take that leap of faith. You should go independent. You should start your own business,” and there I was not willing to do the same thing myself.

I don’t want to be critical calling folks out on inertia or saying, “Hey, you’re arbitrarily kicking the can,” but I can relate. I did that. I had to take that first anxious step of making that move. I can relate that there’s a lot of pressure there.

I had people pointing out to me too….are you going to wait forever to do this or are you going to do it?  I absolutely can relate firsthand on that.

Now, let’s discuss problems with waiting any longer than is necessary.

The first one is an economic one. In most instances, one of the reasons advisors make the move into the RIA model is the better economics they will have. I’ve done all kinds of videos on that and podcast episodes. Whether that’s their annual take home, the enterprise value of their practice, their ability to grow their firm faster.

Let’s concentrate on the increased bottom line take home. I did a whole episode on how the RIA proverbial payout grid compares to a broker-dealer payout grid so you can learn more about that if you’d like to.

Generally speaking, you will make more money under the RIA model than you will in most of the traditional broker-dealer models.

Let’s assume that is the case for you. We’re going to use very simple numbers here, but let’s say when you run the math under the RIA model, compared to what you have now, you will make an extra $120,000 a year.

Now, the reason I picked that number is because that easily divides by 12. What that means is every month you wait, you are arguably leaving $10,000 on the table. If you want to kick the can, just for the sake of kicking the can, just know it’s costing you $10,000 a month every month to kick that can.

Now, there’s certainly (income) gaps that are significantly more than $10,000 a month. I’ve certainly seen it more than that.

I’d challenge you by saying….you can wait till the end of the year, you can wait till next year if you want, but let’s run the math regarding how much that’s going to cost you to wait.

I’ll give you two examples though of sometimes where advisors will point out from an economic standpoint of why they want to wait.

I’ve heard before… “My youngest child has two years left in college and I want to wait till they’re done before I make this move.” I get it. There’s a lot going on when your kids are off to college and you’re trying visit them. There are time commitments there.

But from a monetary perspective, if you think…it costs me money to send them off and pay the tuition bill. But think about that. If you wait 2 years – and to use the example I just gave, let’s say it’s $10,000 a month (increased income) – if you wait 2 years, that’s $240,000. That’s most likely more than your entire kid’s total college tuition for all 4 years.

So yes, you can wait. And yes, I guess that gives you some comfort that you can continue to make those tuition payments as you go. But by doing so you’re potentially – again, it depends on your particular circumstances, what your math would be – leaving way more on the table by waiting.

Another example is when advisors maybe have a retention bonus they received, or a join bonus 9 years ago that has a 10-year vest on it or whatnot. I’ve shown advisors how (for example) based on your circumstances and how you want to build out your practice, you could potentially make – again simple numbers here – an extra $200,000 a year.

Now, let’s say you have one year left on a join bonus and if you were to leave today, you would owe back $100,000. Maybe it was a million dollars over 10 years, whatever the case is. If you leave today, you would owe back $100,000.

That’s not a fun idea to think… I’m going to owe back $100,000! But if instead – I know this is very simplified – if you made the move and as a result could make an additional $200,000 over the coming year because of the better economics of the RIA model.

I know mentally it’s not fun to pay anyone $100,000, but if you in turn can make $200,000 more instead, that’s just pure math, pure economics of why that makes sense to be doing. From a money perspective, it typically gives you all the incentive in the world not to kick that can.

Next example, assume you’ve made up your mind… I’m going to go into the RIA model, I’ve explored the options, I’ve figured out which path I’m going to take. It’s X number of months out I’m going to make the move.

The reality is, you’re going to take your foot off the gas of trying to attract and onboard new clients. You’re going to tell yourself… I don’t want to tell them how great I am, tell them how great my current firm supposedly is, get them to move their account so two months from now, I can ask them to move it again.

You will take your foot off the business development gas pedal of growing your firm. The longer the runway is, the longer you’re missing out on growing your firm. It’s not good for the growth of your practice.

Then with existing clients, as you start seeing that light at the end of the tunnel it is going to get awkward when you meet with your clients. In most affiliation models, you should not be telling your clients ahead of time that you are going to be making the move to something else, another firm, another affiliation model.

That’s a whole topic that’s well beyond the scope of this episode, of how that process works of leaving a firm, talking to your clients, that sort of thing. But in most all instances, you don’t want to talk to your clients about it before you actually leave your current firm to go on your new path.

Where that then gets awkward or uncomfortable is as you have routine client meetings, there are going to come times where you’re meeting with a client – you’ll be talking to them about how’s the family, how’s the business, everything, you have a nice conversation – knowing full well in the back of your mind that, oh, in six weeks from now, I’m going to be reaching out to that same client and saying… I’ve started my new firm, I’d love you to join. Again, I’ve done an entire other episode on how that process works or doesn’t work, the steps you need to be aware of, etc.

The idea is the client’s going to say, “Well, geez, I was just in your office a month ago, why didn’t you mention any of this?”

You’re going to have to explain to them why you couldn’t mention it. Unfortunately, it was not appropriate for you to mention it previously. Every advisor that leaves a firm must go through that.

The point is, the longer you kick the can, the longer you will be in that situation of having those awkward client meetings. When in the back of your mind, you’re thinking, I wish I could tell this person, I’m going to have to call them a month from now, two months from now, three months from now, etc. So don’t kick the can just for sake of kicking the can and make that situation even worse.

The last example I’ll give is something I certainly experienced myself leaving my prior environment to start my own firm. Once you’ve made up your mind to do this, you’ve determined it makes sense, you’ve figured out the pathway, you’ve going through all the hard steps, you’re excited about it, it’s going to be great for me, it’s going to be great for my clients….it is going to be mentally hard waiting for that finish line to arrive.

You will be so ready to move on, so ready to jump ship that the smallest of things at your current firm/model will irritate you. Maybe they’ve irritated you all along, but now they will really do so because you want to scream… “I’m out of here in X number of weeks anyway, why is this so difficult?” and yet you can’t.

The longer you kick the can, the more mentally challenging it is because you’re excited for that new path, you’re ready to get on with it. If you voluntarily make that even worse for yourself, by adding inertia and kicking the can, that’s where it can get really draining.

There is never a perfect time to transition to the RIA model, or transition to another firm, transition to any affiliation model, because the reality is there’s always something your clients will be busy with.

You could say, “I don’t want to move around the holidays,” and I get it. You would not want to leave your firm on December 24th because most of your clients may be checked out through the end of the year at that point.

But the reality is there are a lot of holidays throughout the year. If you arbitrarily say, “I don’t want to do it around holidays,” you’re making it difficult.

Afterall, you might also write off, “April is tax time, I don’t want to do it in April,” or, “March, that’s when a lot of families are on spring break, so that’s a tough time,” or, “summer, I know my clients like going on trips during the summer so that’s a tough time.”

There is no perfect time. If you want to kick the can based on, “well, this is not a good time. This is not a good time,” it’s not going to work. There’s never a perfect time. But yet, thousands of advisors have made the move and found a time that’s not perfect, but does at work for them.

Quick story about one of the more amusing chosen dates to transition that I’ve come across. Typically when an advisor leaves, particularly a traditional W-2 broker-dealer model that feels the firm owns the clients – again, there’s a whole process about how you make such a transition – you typically resign on a Friday because that gives you the weekend to get a head start on whatever your strategy is with your clients before your firm has a chance to try and poach them.

There was an advisor once that, I forgot what the holiday was, but she was quite proud of herself because not only – I think it was a Thursday – but it was going to be a long holiday weekend. Everyone was taking the rest of the weekend off. Not only did she give her notice leading up to the long weekend – and maybe this was a little tacky way to do it – but she gave her notice right before a holiday party for the office started.

I forgot what the holiday was, but the idea was she gave her resignation knowing full well that no one was going to drop what they’re doing. They’re having this holiday party. And then most everyone’s checked out for the long weekend.

Strategically, it absolutely made sense. Now it’s a little harsh way to do it, but hey, very strategic. So, holidays can actually work in your benefit as well so don’t use them as a reason to kick the can.

Finally, two parting thoughts to take away from this.

Transitioning to the RIA model, the analogy I use frequently is that it’s like refinancing a mortgage to get a lower interest rate. For any of you that have done it, it’s a lot of work. It’s not fun. It costs money. Sometimes paperwork gets messed up along the way, and you have to resubmit things and it’s very aggravating.

However, once you’re on the other side of that refinance and you now have a lower interest rate and you’re saving money every month going forward, I’ve never heard of anyone that’s gone through it and on the other side say they regretted having done so.

While they were going through it, it wasn’t fun. There’s a lot of steps, a lot of aggravation, all that comes with it. But once you’re over the hump, everyone looks back and says it was worthwhile doing it.

That’s how you should look at transitioning your firm to the RIA model. It is going to be a lot of work. It is going to be a lot of stress. It is going to be a lot of steps that you have to work through and anxiety and all those sorts of things.

But talk to any advisor that’s made that move, that’s now on the other end and the dust has settled, their stress level has gone back down, their anxiety has gone back down, they’re excited about this new path they’re on, I’ve yet to hear any such advisors say, “I regret having done it.”

If anything, the answer you will hear over and over again is, “I wish I would have done it even sooner.” So keep that in mind, as you look at what a transition might mean for you.

The final thing I would challenge you on is you have inevitably had prospective clients come to your practice, you’ve been working with them to try to learn about them, help them understand what you can provide for them, and it’s a perfect match. You absolutely would be great for them, they absolutely need your services, need your advice. What they have right now is not at all ideal.

It’s a matter of “let’s begin the engagement, let’s move your assets, let’s start our process here at the new firm.” Yet you’ve inevitably had such clients that kick the can on that for necessarily no good reason. You’re showing them a much better path, both with what you can do with their assets, the service you can provide them. Everything makes sense for the client to make the move.

And yet sometimes it’s just this painfully slow process of month after month waiting and then finally, they make the move. So, you can relate to how people shouldn’t arbitrarily kick the can for no other reason than just to kick it. You’ve seen it with prospective clients.

As you look at making a move yourself, make sure you don’t arbitrarily kick the can for no, arguably, good reason.

Again, there are some hard reasons it has to go through a certain timeline. And there are sometimes soft reasons that might slow it up a bit. But make sure you’re not arbitrarily slowing things down unnecessarily.

Think more along the lines of a two to five-month time frame. I am seeing it happen all the time, sometimes even shorter. You can’t always do that with some of the pathways into the model, but do not think this has to be a very long process.

If it makes sense for you, if you’ve done your due diligence, you’ve done all the research, you’ve talked to someone like me to understand everything there is to know about how this works, you know you’re making the right decision….move forward, get on with it and go down that path. You don’t have to make it a long process. The sooner you get there, the sooner you start getting to benefit from all of the advantages of doing so.

With that, like I said, my name is Brad Wales with Transition To RIA. This is the sort of thing I help advisors with all the time.

If you’re not already there, head on over to TransitionToRIA.com.  You’ll find all kinds of videos, podcasts, whitepapers. All kinds of resources to help you better understand the RIA model and why it might be a fit for you.

The easiest thing to do, at the top of every page is a contact link. Click on that and you can instantly and easily schedule a one-on-one conversation with me to go over this exact sort of topic and how it relates to you specifically because again, every advisor situation is unique. I’d be happy to have that conversation.

Again, if you’re not there, TransitionToRIA.com. You’ll find all of the resources that I noted.

With that, I hope you found value in today’s episode, and I’ll see you on the next one.

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