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Also available as podcast (Episode #111)
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What is the most time-consuming part of transitioning to the RIA model?
There are different pathways into the RIA model. Some advisors choose to start their own RIA. Others join an existing RIA solution. Whereas others explore a sort of hybrid between the two. If starting your own RIA, the process from initial interest/discovery, to making the transition typically takes 6-9 months. Though depending on circumstances, some transitions are quicker, others take longer. But within that typical 6-9 months, there are two main variables that are the most time consuming, and thus need to be planned for and prioritized accordingly: 1) the time needed to formally registered the RIA; 2) the time needed to establish a physical office presence (if such an office is desired.)
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Full Transcript:
What is the most time-consuming part of transitioning to the RIA model? That is today’s question on the Transition To RIA question and answer series. It is episode #111.
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.
On today’s episode we’re going to talk about if you conclude that transitioning your practice to the RIA model makes sense – and there’s all kinds of steps involved, which I talk a lot about in these episodes – but what is the most time-consuming part of that process? That’s what we’re going to dive into here.
I’ve addressed on a prior episode how long it takes to transition into the model. I’ll touch on that again briefly at a macro level, but specifically of all the steps involved, what are the most time consuming that you’ll want to plan accordingly for that could potentially prolong or delay the launch of your RIA?
One of the keys is that some of the steps are out of your control. It doesn’t matter how fast you want to move things along, because you’re reliant on other services involved, you can only go as fast as they’re able or willing to go.
I’m going to be talking about two items that are generally the most time consuming steps involved in the process.
To back up real quick though, to understand where those two pieces fall into the process, it’s important to understand the three main steps involved with potentially transitioning your practice to the RIA model.
The first step is to take the time to understand if the RIA model is even the right fit for your practice.
You need to understand how the model works, how the economics works, how the flexibility works, how your responsibilities will work. Then understand how does that compare to what you have now, and is it a good fit to be making that transition?
It’s essentially all education at that point. That’s a big part of what I help advisors with is understanding how it works. What do you have now? Is it a fit? Is it something you should be pursuing?
Step two in the process is if we conclude that it’s a potential fit for your practice, there are then three main ways to transition to the model.
On one end of the spectrum is you start your own RIA and build out the necessary solution providers around it to support the RIA. On the other end of the spectrum, as opposed to starting your own, you might conclude you’re better off joining an RIA.
These (plug-in) solutions often have been purpose-built for this very reason. It’s for advisors that want the benefits, the economics, the flexibility, the freedom, the independence of having their own RIA, but don’t want some of the compliance and other responsibilities of starting their own RIA.
And then in the middle, there’s a go between those two, often referred to as a supported independence type approach.
The idea being there’s three main ways to go about doing this. They all have their pros and cons, so you need to take the time to understand how all three work, how all three would look for your practice, and then you conclude which of the three is best for you and your practice.
I help advisors understand and pursue all three of them. I have no incentive to steer you one way or the other. It’s to help you understand what are the three options, how do they work, what’s best for your practice.
So that’s step two in the process. Now if you get past that, the final step in the process is what logistical steps do you have to take to implement the path that you’ve chosen in step two?
In this episode, we’re primarily talking about starting your own RIA. So what are the logistical pieces you need to put in place, from choosing a custodian, choosing technology, getting E&O, creating a website, etc?
Of all those logistical pieces, I’m going to be detailing the two specific items that typically are the most time-consuming.
And these are in the logistical bucket because of out of the three steps (is the model right for you in general, which operational model should you pursue, logistics) you and I can get on a zoom and we could pull an all-nighter and crunch out the first two as quickly as possible, because it’s mostly education.
To the degree you’re willing to put in the time, I’m able to put in the time to meet with you at whatever time works for you, we in theory could knock that out as quickly as possible. It would still take time, but we could in try to do it as quickly as we can. But once you get to the logistics, that’s where things start to slow down.
To be sure, when working through the logistics, you are generally doing most of those steps in parallel. It’s not a matter of…. let’s identify the 10 things you need to solve for and you’re going to do them one at a time and you can’t start the next one till you finish the prior one.
There are some steps that need to be sequential, but for the most part, they can be worked on in parallel. Now you’ll want to prioritize that. That’s something I help advisors with is here are the things we need to start working on now, here’s what we can push off to farther into the process, etc.
The two time-consuming items we’re talking about here you often will be running them in parallel. So I don’t want to appear to be suggesting you have to do one and you can’t even start the next one until you finish the first. You can run them in parallel.
And then the other quick point I’ll make is, again, this pertains to starting your own RIA. If you join an RIA, this process, or at least the logistical steps can generally be done a lot quicker than if you’re starting your own RIA.
Now you wouldn’t want to pick which of the three pathways to pursue based on which is the quickest, because you’re making a very long-term decision. But if you conclude that joining an RIA, and I’ve done several episodes on that, is the best path for you, that generally is a quicker process than if you are starting your own RIA.
Now, let’s get into the two specific items. Which me noting these is from having talked with and worked with hundreds of advisors through this process.
The two items are 1) registering the RIA itself; 2) getting your office arrangement in place.
Let’s dive into both of those one at a time.
If you are going to have your own RIA, part of that process is registering it on the front end. There are multiple steps involved with that, which I’ve covered in many episodes.
The first step in registering an RIA is selecting and hiring a compliance consulting firm to do the registration for you. There are several different firms to choose from, with different service offerings, different price points. They help you create the ADV, the policies and procedures manual, advisory agreement, etc.
You first must understand who are the available providers to choose from? Why might you choose one over the other? I help you with that.
But even once you’ve done your due diligence and hired one, there is time involved in all the steps they need to do. They must learn about your practice, they need to draft documents, there’s back and forth to make sure what they’ve come up with properly reflects what your practice does, those sorts of things.
And then they need to send the registration off to the regulator. I did a separate episode on this, but in most cases it will be based on your AUM size.
If you have one hundred million or more in assets, you will be SEC registered. If you’re under one hundred million, it’s typically going to the state that you reside in.
Regardless of whether it goes to the SEC or the state, at that point, it is now out of your control. You can do everything leading up to that as quickly as possible. You can hire a compliance consultant as quickly as possible. You want to be prudent with this and do your research, but let’s say you go through those steps on your end as quickly as you’re able to.
You can work with them on trying to create the ADV as quickly as you’re able to on your side from a capacity standpoint and they’re able to on their side. But once it gets sent off to the SEC or state you must wait for them to respond, and the time involved can vary.
The SEC is typically around 30 days. States unfortunately are all over the place and each state has a different standard that they have historically held to. Part of what the compliance consulting firm will help you understand if you are going to be state registered is to let you know typically how long your state takes.
States are usually not less than 30 days. If anything, they unfortunately can be longer, in some cases much longer.
The point being is the registration process takes time.
When someone asks me how long it takes to register an RIA, from the time you’ve engaged a compliance consultant – so assume you’ve already done the homework to pick one – typically you want to allow 45 to 90 days from start to finish.
The reason for a range is primarily based on how long it takes for the regulator to come back on their side. There is work involved. It takes time. Sometime longer than anticipated. There’s not much you can do to speed that process up.
Again, the parts you’re involved in such as being asked for information about your practice by the compliance consulting firm, perhaps you can do your part as quickly as possible, but it does take time.
If you called me up and said… “Brad, I want to start an RIA. I want to go live in a month.” It’s not going to happen. We can pull an all-nighter, even multiple days in a row, it’s not going to get you to the point where you can go live in something like a month.
And reminder, again, if you decide to join an RIA (vs starting your own), you obviously don’t need to do this step of registering an RIA.
The second time consuming step is establishing whatever office situation you desire to have.
For some of you, this could be very quick. If you are already independent, perhaps with an independent broker-dealer, and you already have an office, you can essentially skip this step. You already have that ready to go.
But for those of you that are perhaps with a wirehouse firm or W2 regional broker-dealer, where you will be needing to source a new office, this process can be very time-consuming.
Now part of this is how extravagant or not you want your office to be.
On one end of the range, and there’s increasingly more RIAs doing this, you might elect to be 100% virtual with your practice. You’re not going to have a traditional office footprint.
Or maybe you plan to use more of a shared-office type arrangement, a location that you pay for as needed. Or maybe you’re going to go to your clients in most instances. Those scenarios are going to be a lot quicker to figure out.
If instead you want a traditional office approach, that can take a long time depending on the circumstances. You might choose to buy a building – I did a recent episode on how that can be advantageous.
If you want to do that, you don’t necessarily need to do that as part of your initial transition. That could be a phase two of this new path you’re on.
But if you’re going to acquire a building, it’s going to take time to locate a building, go through a transaction, set the office up, etc.
Or maybe you plan to lease an office, which many advisors do. There are different flavors of that. Some are turnkey office locations that are already built out. That is a much quicker way to get into a space.
But you still need to locate an office, look at different options, negotiate lease terms, etc. That takes time.
Another path is you might find an office that is initially just a shell, where you are going to need to potentially move walls, reconfigure the layout, etc. That renovation process can often take months. You are generally working with contractors to make those changes.
A landlord will often help with that process. They’ll guide you to the right resources to be able to hire someone for the renovations. They might even give you some funds to use towards the project. But it still takes time.
In all my years helping advisors with transitions, the number one cause of delay from the target date they were originally aiming for, is due to unexpected delays in getting the office ready.
There could be holdups with permits, holdups with contractors, etc. It’s often out of your control, and can end up pushing back a planned transition date weeks if not months.
The point of all this is once (if) you’ve concluded the RIA model is a fit for your practice, and you’ve determined which model to pursue, you need to then solve for the needed logistics.
A big part of what I help advisors with is knowing what those logistics are, and helping prioritize what order they should be addressed. Figuring out the office situation is generally always early in that process.
I hope this has helped you understand what these main steps are and where things could slow down and where you have control or not to dictate the time needed.
There’s only so much you and I can do to control the pace of some of the steps, so we want to know what those things are, and set aside time for them accordingly. To prioritize them as needed.
To put a full picture on this – I’ve talked about this in other episodes – but if you came to me and said…. “Brad, let’s go through all these steps. Let’s understand if my practice is a fit, discuss the models to choose from, get all the pieces in place, how long does that typically take?”
If you end up on a path of starting your own RIA, I explain its typically a six to nine month process. It can be done quicker, but a reasonable pace is within that time frame.
I’ve helped advisors do it much shorter than that. And there’s other advisors that because of their circumstances, sometimes take years from start to finish. There are reasons either timeline might make sense for you. But typically, it’s six to nine months.
With that, like I said at the top, my name is Brad Wales with Transition To RIA. This is the type of thing I help advisors with. Helping you understand everything there is know about should you even be considering the RIA model? How do you go about doing it? How do you get the logistics in place? How do you get from point A where you’re at now, to point B where you’re launching your own independent firm?
I am happy to have a conversation with you about that as well.
First things first though, 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 with me. I’m happy to have that chat with you.
Again, the contact link at the top of 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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