Q96 – What Is The Quickest You Could Transition To The RIA Model?

Also available as podcast (Episode #96)

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What Is The Quickest You Could Transition To The RIA Model?

You ideally don’t want to find yourself having to ask this question, as a transition to the RIA model should be a slow and well managed process. However, there are circumstances where an expedited transition is required. The time needed will depend on whether you plan to start your own RIA, or will be joining an existing RIA.  The latter can accommodate a much quicker timeline if needed.

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Full Transcript:

What is the quickest you could transition to the RIA model? That is today’s question on the Transition To RIA question & answer series. It is episode #96.

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 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 RIA model.

Again, TransitionToRIA.com.

On today’s episode, we’re going to discuss a question I hope many of you never have to ask. But I did want to make this episode for two reasons.

First, some of you will find yourself asking what is the quickest amount of time I could transition my practice to the RIA model? We’re going to go over a couple of reasons why that question might come up. As some of you might be in a situation where you need to ask that question.

And second, the answers that I’m going to provide are instructive for anyone that might be considering an eventual transition to the RIA model. It will help you understand the timeline involved in making a transition.

Let’s jump in.

Ideally, you’re never having to ask this question because a transition should be a well thought out, methodical, planned out process. It starts with considering if the RIA model is even the right path for your practice, and goes all the way to the final transition process.

You ideally don’t want to rush that process. I’m going to give you some timelines of how long it typically takes. But there are some circumstances that you might find yourself in that do require a more accelerated pace, possibly very accelerated. That’s what we’re going to be talking about here on this episode.

We’ll start with a few examples of where this question could come up.

First, perhaps the most obvious, is if an advisor has been terminated from their current, now past firm. Whether that’s a broker-dealer or they’re with some sort of RIA already and whatever the circumstances, they have been terminated on the spot and they are now dead in the water.

That’s a very scary time for advisors. A very challenging time. Their revenue, their income has been cut off. Their entire career has now been abruptly upended. Their clients are now in the state of limbo, and every day that passes, there’s uncertainty of what will happen with those clients. Will they follow whatever the new path is going to be? So not at all an ideal situation.

If an advisor, unfortunately, finds themselves in that situation, and it does happen – every year, you see articles about advisors or brokers terminated for various reasons. Some deservedly so, and others, unfortunately, I would argue more questionably so by their firm.

But if the result is they’ve been terminated, they now must find a new path immediately. Obviously, they are going to be in a situation where they’re saying, “If I were going this direction, what is the quickest that I could get this done?”

I did a separate episode on what could prevent you from going into the RIA model. Depending on the circumstances of the termination, that could prevent you for various reasons, that I dive deeper into on that episode.

Point being, if you’ve been terminated from a broker-dealer, don’t automatically assume, “Well, the salvation is the RIA model, because that’s a different model and I can surely do it. I just want to know how quickly I could do it.”

There are unfortunately much more nuances to it that are involved. As I did a separate episode on that, I won’t dive into that further here.

Another example of where this question could be asked, short of the extreme termination example, is if you’re at a firm who has come to you – or come to you and all your advisor peers – asking you to sign a new affiliation agreement with them.

If you already have some sort of agreement in place or don’t currently have an agreement at all, and your firm is coming to you wanting you to sign a new agreement, you can almost be 100% assured the terms of that are not going to be better for you. They are going to be worse for you.

Perhaps you’re in a situation where there’s not currently language that would make it difficult for you to leave one day and take your clients with you. And perhaps they are now trying to slide that language into the agreement.

They are giving you an agreement and saying you have 30 days to sign it. Hopefully they give you at least that kind of courtesy to review it and sign it.  But if you refuse to sign it, there’s going to be ramifications.

So sometimes that can cause the scenario of where you don’t want to sign it. The terms of doing so are not going to be in your favor. You need to find a different path. What’s the quickest you could do that? You’re on the clock. That is a very real situation that comes up from time to time.

The next example, which is kind of related, is if you have suspicions that your firm is on the verge of being acquired, or they’ll be announcing soon that they’ll be acquired.

You understandably don’t know what uncertainty that will bring. What would the new acquirer change about the firm? What would your clients think about that? Would the acquirer require that you sign something right from the get go?

That can cause a lot of uncertainty and advisors say, “I want to get ahead of that, I want to depart before this announcement. I want to get ahead of that.” So that’s another reason sometimes advisors need to move things along quicker.

The final example I’ll give, and this one is not as super time-sensitive, but there are a lot of folks that say, “I’ve been thinking about doing this for a long time. I’m not happy at my current firm. I haven’t been terminated or anything like that, but I’m not happy. I know I’ve been needing to make a change. I’ve seen my colleagues and peers make the change. I just haven’t got around to actually taking the steps. And now I’m all in on doing so. Let’s get going. Teach me everything I need to know. I want to move this along as quickly as reasonably possible because I’ve been kicking the can too long and I just want to get this done with.”

So, that’s another quasi version of “what’s the quickest I could do that?” And thankfully, that latter version is usually a little less time-sensitive, but that scenario does come up.

Those are some of the reasons this question might be asked. You might find yourself in one of these situations yourself. Either way, I think some of the details to follow here will be helpful.

I’m going to give some specifics of what’s the quickest you could do this, but the timeline is driven by several variables.

First, is the education needed on the front end.

There are two main educational pieces that I do with essentially all advisors I talk to, whether they’re on some sort of urgent schedule or not.

First is does the RIA model make sense for you? Does it make sense for the profile of your practice? Whatever it is you think you’re going to be able to do or accomplish in the RIA model, is that accurate? Let’s make sure we understand that. Do you understand the economics, the responsibilities, those sorts of things.

There is a layer of initial education regarding whether you should even be going down this path. That takes time to go through.

Now, working with someone like me, that could be truncated significantly. If we said, “There are significant circumstances, we do need to do things very quickly. Let’s pull the proverbial all-nighter and go over as much as we can in as short amount of time as we can.” In theory, that can be truncated down. But there is this education layer of, should you even be going down this path?

The second part of the education layer is if you conclude that going into the RIA model is the right fit, there are different pathways into the model as I talk about frequently on these episodes.

You might start your own RIA. You might join an RIA. There are flavors in the middle, a mix between those two. The next education layer is understanding what those are, how they compare, and why you might choose one over the other. They all have pros and cons. There’s no set rules that if you’re a certain size, you should only go one direction.

Again, that takes time to work through. We could pull the proverbial all-nighter, but it does take time to work through that education process.

Next, once you’ve got past the two education layers, now, who are the solution providers you’ll need to lean on to be able to go down that path?

All of this is what I help advisors with. From the education, to figuring out who the solution providers are. All of that is what I do for advisors. I can help you with it as well.

Let’s say you decide the best path is to join an RIA. Next step is, who are the RIAs out there in the marketplace? Why might you choose one over another? How are they different? What are the pros and cons?

And once you’ve identified the likeliest solution providers to use, you now need to do due diligence on them.

If it’s joining an RIA, you need to understand what their value proposition is, what their pricing is, understand the things you can or can’t do in that approach. That takes time to sort through.

Now, you can accelerate that as much as possible based on how quickly you’re willing to do it. And obviously, a solution provider that has a chance of earning your business will generally try to work with you as quickly as desired as well. But that due diligence step takes time.

And then last, before I jump into some specifics, are the actual transition steps involved.

Whatever your chosen pathway is, whatever your solution providers are, there are logistics of them preparing to onboard you and the steps you need to take to onboard with them.

That’s things like preparing for client paperwork, setting up technology, etc. There is a time component to that. Depending on which path you take, it could be truncated or it could be longer, but there are logistics involved. The timeline involved will in part depend on which of the pathways into the model you choose.

What I’m going to go into next is to talk about the timeline needed if you were to start your own RIA versus the timeline needed if you were to join an RIA. The path you choose can have dramatically different time needed.

First, is starting your own RIA.

If you called me today and it’s our first conversation, you’re just learning all this, and we quickly worked through some education steps and quickly concluded you were going to start your own RIA (again, that’s usually not just a 20-minute conversation), what’s the timeline involved?

If you’re leaving a W-2 wirehouse type environment, as an example, a breakaway advisor, you typically want to pencil in six to nine months under ideal circumstances from first conversation to when you’re making the move. The education layer, the due diligence layer, the logistics. Six to nine months would be the ideal approach for that.

Now, that can be shortened. Again, it depends on how quickly you run through the education, how quickly you’re willing to knock out the due diligence steps. There are ways to potentially shorten that, but there are still parts that are out of your control.

As an example, if you’re starting your own RIA, one of those steps is registering the RIA either with the state or SEC, depending on your circumstances. I’ve done all kinds of episodes on how you logistically set up an RIA.

But that process alone, even when you’re using the right solution providers to help you with that, that process alone typically takes 45 to 90 days. A lot of that is out of your control. You could do your parts quicker, you can try to get your compliance vendor to work quicker, but eventually it’s sent off to either the state or the SEC and it’s out of everyone’s control at that point as you wait to hear back.

So just know, six to nine months is ideal for starting your own RIA. It can be done quicker, but there’s still certain components of it that are completely out of your control, that involve a minimum amount of time required.

It is not possible, if you were to call me up and say, “My circumstances are as such, I need to do this as quickly as possible. I insist on having my own RIA. I want to do this in 30 days. Brad, can we do this and pull an all-nighter and do everything?” It’s not going to happen to have your own RIA in 30 days, again, because some of it is out of your control.

Now let’s consider if you were to join an RIA.

Ideally you’re not choosing which of the pathways to go down, whether starting your own RIA or joining RIA, because of the time needed to do so. But I do understand for some folks, that will be relevant in the process.

There are several reasons to join an existing RIA that you might want to consider, beyond the time involved. It’s not the sole reason someone might join an existing RIA, but it is one of the reasons. If you are on an expedited timeline, it is much quicker to join an existing RIA than it is to try to start your own RIA.

Now, keep in mind there’s still due diligence to be done. You need to understand who the RIAs are that might be a good fit for your practice. You need to spend time talking to them.

And they need to do due diligence on you as well. If you’re coming to them because you’ve been terminated for very bad reasons, well, guess what, they’re probably not going to take you on to begin with.

So just know, it’s not the salvation to say, “I’ll just join an RIA,” because it depends on the circumstances of why you’re having to do it so urgently. They might not be willing to work with you. They often won’t be willing to work with you under such circumstances.

If you’re in a scenario where your current firm is simply asking you to sign an updated affiliation agreement, they will understand. It’s not because you’ve harmed clients or you’ve got FINRA chasing after you. It’s because the circumstances are changing of no fault of your own and you’re on a timeline that’s more accelerated than would be ideal. But they understand that and they’ll certainly try to work with you as quickly as possible.

So, joining an existing RIA can go much quicker. The question is, how quick?

If you have been terminated and an RIA is comfortable with the circumstances, you’ve talked it out with them, they like you, you like them. They will essentially say, “We can begin this immediately, because you have no choice.”

You’re dead in the water. Your clients are stranded. You have no income coming in. They’ll say, “This is not at all ideal of a timeline, but we understand you’re dead in the water. We’ll bring you on essentially tomorrow and our team will help scramble to try to train you as quickly as possible on how to open accounts, ACAT accounts, all the things.”

So, in theory, it could be done immediately under extreme circumstances. But again, it’s going to be rare that you’re in that circumstance where it’s so extreme and yet that still works for the RIA.

But my point is because they already have the RIA, they already have the technology in place, they already have the compliance in place, it’s all ready to go, it’s just a matter of onboarding you, it could in theory be done immediately.

Now, for comparison, what’s a more ideal scenario?

If you were to do this slow and methodical, which would be ideal, and you go through all these steps and you decide that joining an existing RIA is the right path and you do your due diligence and you pick your provider and you’re ready to make the move, if you ask that RIA, they would typically tell you they want at least 60 days from the time you “commit” to joining them, to help you get trained, to learn the new system, to prepare for moving your clients, etc.

They might even ask for 90 days, depends on what all they’ll be doing for you. Maybe they’re setting up a website for you, that sort of thing. That might be their ideal timeline.

So, when the house is not on fire, they’d say 60 days, maybe 90 days. They could do it quicker. If you came to them with the “forced to sign a new agreement” scenario, and you only have 30 days to respond to that request, they could accelerate it and try to move things much quicker.

It is possible for them to do things quicker, but for perspective, they typically want 60, maybe even 90 days to do their part.

The point is depending on whether you will start your own RIA or join one, will have dramatically different timelines involved. There are things you can do under either circumstance to speed that up. But again, and particularly with starting your own RIA, you can only speed that up so much.

With joining an RIA, you can certainly speed it up a whole lot more, but there’s still logistics involved that must be worked through. Under the most extreme case, it could effectively be immediate and it is what it is and you just have to work through it as best as possible. But ideally, they do want a timeline involved, but they could shorten it under the right circumstances.

I’ll point out a final option, though there are not very many of these providers in the marketplace.

I often talk about the three main pathways into the model. Start your own RIA, join an RIA on the other end of the spectrum, and then in the middle, there are some providers that say, “Whatever the circumstances, you want to have your own RIA, but maybe you don’t want to have to put all the pieces together that a typical RIA has to piece together.” That’s things like technology, compliance, E&O, marketing, etc.

There are what I refer to as bundled solution providers in the middle that say, “You can have your own RIA, but as opposed to putting all those pieces together yourself, we’ve bundled up, say, 80% of it, and we package it all up, we service it for you, and it’s all one bundled price.”

Discussing that approach is an entire topic. I’ve done episodes on it. The reason I bring it up on this episode is there are some solution providers that not only do that, but they also have an RIA option as part of their overall organization where you could join their RIA.

If you were to look at a firm like that, you could look at both solutions. For the reasons we’ve talked about on this episode, you could join their RIA in a much quicker timeline. And you might even like their value proposition and be content under their RIA and never make a change after that.

But for folks that are inclined to have their own RIA, but for whatever the circumstances, perhaps because of timeline involved, they don’t have the luxury of the time needed to start one up. There are some of these middle providers that say, “You can join our RIA. We can do that very quickly (for all the reasons I just said.) You can come under our RIA. You can immediately start focusing on your clients, trying to move your clients over.

And then, whenever the dust has settled, whether that’s 3 months, 6 months, 12 months, even longer, if you decide at that point, you’re ready to stand up your own RIA, and now you’re not on an urgent time crunch, you can do it in a more leisurely pace, they will not only support you in that, they will offer to still be your bundled solution provider (albeit under your own RIA instead.)

This can all be done transparently. You’re not having to worry about sneaking away or leaving their firm. They understand it was always going to be a two-step process for you. They support the two-step approach.

Think of it as like a bridge program. You’re joining the RIA because maybe that is the easier glide path for the initial transition, the quicker glide path. But your end game is your own RIA. If you like the solution provider. You like how they’ve packaged the technology. You like how they’ll help with compliance. They’ll let you two-step it, join their RIA, and then move over to your own.

I hope this episode has been helpful. No matter how you do this, be it slow, methodical, fast, just understand the differences in timelines involved.

If you find yourself in expedited circumstances, there are expedited options to consider. Again though, where it becomes very challenging is if it is a termination situation. Depending on the termination, it could be a dead end.

With that, like I said, my name is Brad Wales with Transition To RIA. This is the kind of conversation I have with advisors all day long. How does the RIA model work? Is it something you should be considering? What are the pathways into the model? Who are the solution providers you should be considering? How long will this take? What are the steps necessary to work through the process quicker than the six to nine months that would be ideal?

I’m happy to have that conversation with you as well.

As a starting point, head to TransitionToRIA.com. You’ll find all the resources I make available to help you better understand the RIA model. This entire series is available in video format, podcast format. I have articles, I have whitepapers. All kinds of things to help you better understand the RIA model.

At the top of every page is a contact link. Click on that, you can instantly and easily schedule time to have a one-on-one conversation with me. Whether you want to talk about today’s episode 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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