…
Also available as podcast (Episode #139)
Apple | Android | Spotify | Amazon | Audible
What Time Of Year Should I Transition To The RIA Model?
TL;DR – There are both micro and macro variables to consider when determining what time of the year to transition you practice to the RIA model. On a micro level, you may need to consider the timeline of deferred comp or transition assistance vesting. Macro level variables include the time needed to prepare for a transition, holiday periods that are generally avoided, etc. It is also important to be cautious with who is providing you advice on when to make a transition.
Host:
Brad Wales founded Transition To RIA in 2020 after nearly 20 years of prior industry experience, including direct RIA related roles in Compliance, Finance and Business Development. He has an MBA and has held the 4, 7, 24, 63 & 65 licenses. He has been quoted or featured in 100+ industry articles including in the Wall Street Journal, Barron’s, and most every other major industry publication. He is well known for his RIA video explanatory series, and Kitces named his podcast as a “Top Podcast for Financial Advisors.”
Found This Video Helpful?
Want to understand what a transition to the RIA model would look like for your practice? Schedule a Discovery call to learn more.
While You’re Here
Consider also downloading the FREE WHITEPAPER: “Steps To Take Now If You Anticipate Transitioning Your Practice To The RIA Model Anytime Within The Next 10 Years.”
Full Transcription Of Video:
What time of year should I transition to the RIA model? That is today’s question on the Transition To RIA question and answer series. It is episode #139.
Hi, I’m Brad Wales with Transition To RIA where we 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 we make available from this entire series in video format, podcast format. There are articles, there are whitepapers. There’s a vendor profile series. 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’ve concluded you should make a transition into the RIA model, are there particular times of the year you should make the transition, and are there times you should perhaps not be making the transition?
I’m going to give you some macro themes and thoughts around that, and then we’ll get into some of the weeds too on what is more typically done. This is from having observed this for roughly 20 years now of what works best for advisors. So we’ll discuss both of those tranches.
First, at a super high level, there is no good time to transition to the RIA model if you shouldn’t be transitioning to the RIA model to begin with.
Not to equate it to buying a car, but everyone wants a good deal on a car. But there’s no such thing as a good deal on a car that’s not the right car for you.
You must make sure first, in this case, that the RIA model is a good fit for you. I’ve done several episodes on that topic. I’m happy to have a one-on-one conversation with you as well about it.
But you first must make sure that the RIA model is a good fit before you start needing to consider or worry about what time of the year should you be making the move.
If you can get past that, then also keep in mind, and you don’t typically want this to drive your decision point of when you’re making the move, but to give you perspective, if you begin this process of exploring the RIA model, reaching out, having a conversation with me, going through all the steps, that process usually takes from that first conversation to when someone’s making the move, six to nine months.
Now there are reasons advisors and teams at times move much quicker than that. There are reasons sometimes the timeline needs to be significantly longer than that. But just to give you perspective, it’s typically six to nine months.
Some of that timeline is out of your control. If you go down the path of starting your own RIA, part of that is registering the RIA. That process alone typically takes 45 to 90 days. Regardless of how fast you and I maybe try to work through all the steps in general, some of it is outside of your control.
The main takeaway there is you’re not going to transition, or at least if that involves starting your own RIA – if you join an RIA it is different – but if you’re your own RIA, it’s not going to happen in (for example) 30 days even if you want it to happen.
So just know that the timeline involved is usually, again, six to nine months. Could go quicker, could go longer.
And as I just alluded to, if you were to determine, and again, that’s part of what I help you figure out, is if perhaps joining some sort of existing RIA platform might be the better path for you, that can go quicker than starting your own RIA. But ideally, you’re not letting the timeline involved drive the decision of which path you should be taking because this is a very important decision to be making.
For some additional macro thoughts….it is going to be a lot of work making a transition regardless of what time of year you make it.
Throughout this process, you still have your proverbial day job to keep doing. And it’s not like your job as an advisor is considerably easier during certain parts of the year than other parts.
There’s been a trend of advisors having “surge meetings,” which are all grouped around certain times and perhaps if you’re doing that there could be some pockets that are more flexible than others. But for most of you, you’re going to have a full plate regardless throughout the year. It’s not like you can be picking a time that is going to be meaningfully more easier than another.
I am straight shooter on these episodes about how making a transition is a lot of work. It will be double duty for some period of time because you have that day job that has to carry on, and you’re going to be working through months of all the due diligence and the exploration and the actual transition itself.
For that reason, there are a lot of advisors that never make the change. Which is unfortunate because they might conclude that a transition to the RIA model is best for them, and their practice, and their team members, and their clients. But they just can’t mentally get over the amount of work that’s going to be involved.
The good news though is the extra work is only for a finite period. Now, it’s measured in months. It’s not measured in weeks. It’s months and months and months of extra work. But the idea being that once you get through it, you’re better off for the balance of your career going forward. It makes it worthwhile.
Next, there is no perfect time.
If you are in search of the perfect time of the year to make the transition, you will never find it and likewise you will never make a transition. It will never be perfect for you. Your plate is generally always full. It will never be perfect for all your clients.
As we’ll talk about, there are some periods of time that are better arguably than other times, but you can’t just definitively say that, for example… “the perfect time is the month of June because myself and my team members and all my clients, all of us are equally available and that’s a great time to be making a transition.”
There is no perfect time and if you mentally think that I need to find that perfect time, you won’t ever do this transition because that’s essentially a delaying mechanism and you’re kicking the can and you’re just never going to do it.
So just accept the fact there’s no perfect time. Let’s figure out the best time of the options that you can work through, but it’s not perfect, there always will be challenges you could identify or come up with of why this particular time is not perfect. You must accept that and go with what is best from the options.
And then before I jump into the micro things, one last point, I would just say be careful. You’ll hear recruiters, whether that’s external third party recruiters, or the recruiters that work for particular firms, and I don’t want to paint a broad brush and say everyone’s like this, but I have heard at times anecdotally that sometimes these folks will suggest that any time of the year to make a move is a good time. That there’s no times that are essentially bad.
They’ll say… “just make the transition, any time is a good time.”
First, the folks that are saying that sometimes don’t have enough experience to know there are some times that are better than others. Or second, they just haven’t been in the game to observe it firsthand.
I’ve been observing it for roughly 20 years now.
I don’t want to paint a broad brush stroke, but these folks are paid to generally move advisers from one place to the other and they are not paid until that occurs. So it’s always perhaps better for them, if they’re solely looking out for themselves, to say… “the sooner the better, make the move.” And they’re not necessarily looking out for what might be best for you.
So just careful of anyone that makes a blanket statement like… “no time is a bad time, just get on with it.”
Now let’s dive into some more specifics on what might be better times than others.
First, there are some things that are going to be very specific to you and your circumstances that can drive this decision.
For example, depending on what kind of firm you’re at now or how long you’ve been there, there are some considerations that might be unique to you.
You might have deferred comp and there are periods when those deferred comp slices vest. If one of those is right around the corner or within a reasonable period of time in the near future, it very well could make sense to wait a little longer to get one more tranche of that deferred comp before you make the move. So you’d want to be considerate of that.
Another example, you’ve maybe received some sort of upfront transition assistance money. Forgivable loan, loan bonus, whatever you want to call it, that has effectively a vest to it.
Vesting is not really what’s happening with the loan bonus, but for simplicity sake I’ll refer to it as such.
Perhaps if you wait till a certain near term timeline on the horizon, another tranche of that will effectively burn off and that will be less money you will owe back if you were to leave your firm. You’d want to be cognizant of that as well and factor that in.
But each of those can be a slippery slope.
With deferred comp, the reason firms, primarily wirehouse firms, W2 firms, have deferred comp is to handcuff you to the firm.
Which don’t get me started on a rant because that’s your money that you’ve earned that they are arbitrarily holding back from you. Don’t let them act like it is some gift to you.
No, it’s revenue you have generated. It’s income you have earned already that they are arbitrarily holding from you for years into the future.
I can continue ranting on that but you get my drift.
Nonetheless, they’ve designed it in a way that typically unless you ride out the balance of your career at that firm and then go through their retirement program – often referred to as a sunset program – which, as I’ve talked about often, those programs are typically a far inferior way to exit from a valuation standpoint, taxation standpoint. Versus going into the RIA model and then eventually exiting in the RIA model.
But the idea is they want to handcuff you there and unless you ride out the balance of your career there, and unless you go through their inferior sunset program, that’s the only way to fully get all your deferred comp.
That is because deferred comp is issued on a rolling basis. Every time you perhaps have a tranche that is vesting (perhaps after a five-year vest period), there is a new trance just starting another five-year period.
And so you can always delay your transition if another tranche is about to vest, but mentally the challenge is there is always another tranche next on the horizon. It might be 12 months away, or six months away.
If your mentality is to always wait for that next tranche to vest, you’re never going to get to the finish line. They’ve done that on purpose. It’s an uphill treadmill where just as you have one vest, another one starts a new vest timeline, and so you’re stuck.
You must mentally accept that the money, even though you have already earned it, and which they are arbitrarily keeping back from you, you will lose some of that making a transition if that’s your situation.
The idea being though that the economics, and that’s part of the exercise you want to do and I can help you with is, are the economics on my future path superior to the point that over the, ideally near term, but certainly over the balance of my career, will not only make up for the deferred comp I lose, but then put me in a much better place as well long term.
Next is with respect to the TA vest.
I get the idea of having to pay money back to your current firm because you haven’t stayed the full nine year package or whatever it is, is mentally challenging.
But you need to calculate out the cost of maybe staying for say six more months. If six more months would hit one more of the vest periods on the TA, that you’re then not going to have to pro rata pay back, you might think… “that’s great, I don’t have to pay that back.”
But if you moved sooner to the RIA model, your new economics post transition, will very likely result in much better economics perhaps over that same timeline. Where even if you must pay some of the TA money back (by leaving sooner than later), you’re still could be net positive.
It’s important to run that math to see how it would pencil out, and the ramifications of leaving sooner versus later.
So, those are the first macro factors that are very specific to each individual advisor.
Now, as far as some specific times of the year to potentially try and avoid, there are two main blocks that I typically see folks hesitate away from transitioning during.
First, you typically see folks not wanting to move shortly before tax day, April 15th. Idea being that history has shown that their clients might have a lot of additional questions at that time and they’re trying to get information about their assets or their investments because their CPA needs it, and they’ve procrastinated, and they need your help.
So typically, leading up to the April 15th(ish) period is something most advisors and teams want to avoid. You’d either want to transition meaningfully earlier in the year, January, February. Or wait till after tax day and maybe you kick things off in May time period.
And then on the other end of the spectrum on the calendar year is the holidays.
I generally have observed, generally suggest, and advisors come to this conclusion on their own, anyways, is that about mid-November on is a challenging time to try to be making a transition if you can avoid that.
Point being, once people start getting that Thanksgiving mindset, maybe going out of town, then it’s December, Christmas or whatever holidays are on the horizon, maybe family trips at that point, the new year.
A lot of your clients, perhaps team members, maybe you have plans with your family, that holiday time is typically difficult to do.
Now, it’s not to say you can’t, within some constraints, but most advisors typically try to avoid this period of the calendar year.
Again though, I’ve heard some people try to say… “your clients don’t care if it’s the holidays, just make the move.”
I question who those folks are looking out for (or not.)
Unless you have a very good reason, why not avoid that likely scenario where your clients are either going to be traveling or tapped out, if you can wait till say January instead to make the move.
So again, from a calendar perspective, around tax time, and late in the year around the holidays are typically times to try to avoid if you can.
I also occasionally hear some advisors who are a little hesitant about the summer months. They’re concerned that their clients travel during the summer. And a lot of your clients probably do travel during the summer. But the reality is your clients are most likely not all traveling at the same time.
I don’t want to paint a broad brush, but Europeans often it seems try to travel in August. Everything in turn kind of shuts down for three four weeks and everyone is often traveling and doing things with family.
But that’s not what we do here in the United States. People travel throughout the summer. Early summer, mid summer, late summer.
And so yes, if you make a transition during the summer some of your clients might be traveling. But it’s not like they’re all going to be traveling at the same time you’re pulling the trigger and making a transition.
Again, it comes back to how there is no perfect time. If you’re trying to use summer as the excuse, you must ask yourself, are you just arbitrarily kicking the can when you don’t need to?
I’m much more passionate about being cautious around tax day and the end of the year holidays. They should have much more weight to consider than worrying about summer travel with your clients.
I’ll wrap up with two final thoughts.
As I’ve alluded to, don’t kick the can with this.
I see this often and I understand the idea of making a transition can be anxiety-inducing, can be stressful, it’s going to be a lot of work. So it can be easy to kick the can.
But if you’ve gone through the steps. You’ve determined the RIA model is right for you. You’ve understood the pathways to choose from. You’ve selected your solution providers. We’ve discussed times of the year to potentially avoid making the move. But even after all that, some advisors will simply arbitrarily push the date out a (for example) further six months.
I always respectfully challenge folks on that, asking if there is a good reason for it.
Sometimes there are, which I’ve alluded to here prior. Other times, it’s just kicking the can.
The reality is, if you’ve concluded this is the move you can and should be making, if you’ve done all your homework, I’ve helped you through this whole process. At some point you say… “we’re ready to go, let’s get it over with.” There’s no reason to then arbitrarily kick the can just to kick the can.
If you do so, everything about your current firm, your current arrangement that perhaps is already frustrating you, is going to only get 10 times worse, because you know you have this new path available to you, this new path ahead of you, and yet you still have to wait because you kicked the can. Those frustrations are going to dig at you significantly more as that time passes.
And again, maybe there are reasons you can’t do it for another six months. But if it’s just because you’ve arbitrarily kicked the can, you’re a glutton for punishment and making things more difficult on yourself.
Then the final takeaway, you will need to clear your calendar for when this is going to happen.
It’s not like you can’t go on vacation towards the early parts of the due diligence process, because that’s still the exploration stage. That’s the due diligence stage. That’s working with me through the steps and understanding the solution providers and evaluating all your options.
However, down the stretch, the final months and particularly weeks leading up to the launch date of your new practice, it is going to be a lot of work. And after you’ve resigned, and you must move all your client accounts, that’s going to be a lot of work for weeks and generally a few months.
During that stretch, before and after, it is what it is. You need to clear the deck on your own calendar so you can dedicate time to that.
If you traditionally go on a big trip during whatever time we’ve penciled in for the transition, maybe this is the year that you’re going to need to not do that trip. And yes, that’s not ideal. That’s not fun. But you need to follow the process properly.
Once on the other side, you’ll have all the years going forward to be able to go on whatever trips you want.
So just know, it is going to be work.
Ideally, your team members as well need to have their calendar cleared as best as possible leading up to the transition date, and then in the weeks and months following as you move over your client accounts.
With that, like I said, my name is Brad Wales with Transition To RIA. I hope this has given you several variables to think about. The considerations that go into the timing of a move.
A big part of what I do is help you from the very beginning of exploration, all the way through to the point where we might be trying to pencil in a specific timeline that’s going to be best for you based on your specific scenario, your specific practice.
First things first, head to the website at TransitionToRIA.com where you’ll find this entire series in video format, podcast format. There are articles, there are whitepapers. There’s a vendor profile series.
And 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. Whether you want to talk about today’s topic or anything else RIA related, I’m happy to have that conversation with you.
Again, TransitionToRIA.com.
And with that, I hope you found value in today’s episode, and I’ll see you on the next one.
Want To Learn More?
Schedule a Discovery call and lets begin a conversation.
