Q10 – Will I officially own my book with my own RIA?

Also available as podcast (Episode #10)

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Will I officially own my own book with my own RIA?

Unlike while working for one of the traditional “captive” broker/dealer firms, as your own Registered Investment Advisor (“RIA”) you will undoubtedly have full “book ownership” of your practice.  There are a number of important variables related to this to be aware of, particularly with respect to the additional economic benefits specifically provided for by the RIA model.

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Full Transcript:

Will I own my book of clients as my own RIA? That is today’s question on the Transition To RIA video series, this is question #10.

Welcome. My name is Brad Wales with Transition To RIA. And today’s question, short and sweet question, but it’s still worth making a video for and I think you’ll understand why here. So the question again is, will I as an advisor officially own my book if I have my own RIA?

I would tell you and I don’t think I’m the only one out there but I’m not really a big fan of the phrase “owning the book” or “owning the book of clients.” Maybe it’s just I’ve been in the RIA world too long where you think of “I own my firm”, “I own my practice”. That’s what you do when you’re in that independent world where it is your ownership. But nonetheless, it is an industry term that is used about, book ownership, or who owns the book of clients. So I’ll use the term here. Like I said though, not a big fan because I think if you’re any advisor that does transition to the RIA model, you start thinking of more of, “Oh, I own my practice, I own my firm, it’s not just this subset of clients that I own, I own the practice.” And so, I think that’s important to think through.

But the short answer to this question is, as your own RIA would you indeed own that book of clients? And the short answer is absolutely, yes. You would be 100% independent. That is your book, your client base both now and in the future when you want to do a liquidity event which I’ll dive into.

I think it’s important, just really reiterating how important book ownership is. Not just to confirm that, yes, you as your (RIA) owner, you would own that book. But why it’s so important.

For many of you watching this that might be at a wirehouse firm or wirehouse-type firm, you’re in that setting where the firm you work for believes they own the book of clients, not you. And no matter how many years or decades you’ve put into building those relationships and fostering those relationships, they still feel those are their clients, not your clients. And that’s a fundamental difference of being in that kind of captive world and in transitioning to the RIA model. Where all of this hard work, like I said, for some of you is decades, that you deserve to have the benefits that come with all that hard work and then have that ownership of the practice, not just the book of clients.

And so I did want to touch on a couple quick examples of why that’s so important, and I did do a full whitepaper on this. If you go to the website, if you’re not already there, TransitionToRIA.com, I did a whole whitepaper on this of 11 different ways the RIA model is superior from an economic standpoint to other affiliation options. And it goes through, obviously 11 items but a couple I’ll just quickly touch on here. But if you really want to dive into those in more detail, I certainly encourage you to head on over to the website, there’s a link right at the top, whitepapers, you can you can easily download it and take a read.

Three kinds of meaningful economic benefits of having book ownership. One, is the higher enterprise value of your book. So one day when you do go to exit the business, you are going to want to maximize the value of your book. This is for many of you, your life’s work, your decades of work, and you’re going to want to maximize the value of that. It just is what it is, having ownership of the book will drive a higher enterprise value for what you can get in a liquidity event with that.

Along with that, the whitepaper really goes into detail on this….is having that optionality and flexibility to, exit the business in terms that fit best for you. Both from a flexibility standpoint but also on financial terms.

Many of you that might be at the more captive firms, the wirehouse firms, they generally offer a sunset-type plan or retirement kind of type plan where you effectively sell the book to a succession advisor that kind of follows in your footsteps. And in the whitepaper, I give a lot of examples why those are two drastically different options both in flexibility and the economics involved. And it’s just important to really understand how much more advantageous it is to own your book and then exit the business under that umbrella than going through one of these sunset plans.

Then along with that, which is very little known is the difference in tax treatments of going through something like a sunset plan, because you don’t own the book, or transitioning into the RIA model where you now own the book and exiting under that strategy. How the tax is on the income or the compensation you will receive from those exits varies quite a bit and it’s worth understanding that.

So again, take a look at that whitepaper. It further again reinforces how important book ownership is.

That was just three little examples and I didn’t even dive too far into them. The whitepaper has 11, a lot of details, but it just drives home how important book ownership is. And that yes, as your own RIA, if you transition to the RIA model, you will have book ownership and it’s important to be aware of.

And I would just say, some of you might be thinking you’re quite a ways away from retirement or from needing a liquidity event and I would encourage you, you might be but you want to do this under your terms. And if that finish line is more advantageous down one path versus another, then there’s no reason to not start thinking about that now and start positioning yourself for when you do reach that point and want to be able to maximize what you can do with that.

In a future video, I’ll dive into a couple more topics maybe on sunset plans or the difference between them but on this one, I just wanted to keep it very simple, answer the basic question, would you own the book if you transition to the RIA model? And the answer is absolutely yes.

I can’t stress enough how important it is that you reach a point where you do have that book ownership and all of the advantages it gives you as a result of that. So again, you need to own your book. You will own your book as an RIA if you were to transition to that model.

With that, like I said, my name is Brad Wales. I’m with Transition To RIA. Helping advisors understand this exact sort of thing is what I do all day long with my firm. I would be happy to have that conversation with you, as well to walk you through any of these details, and help you really understand, what the differences are between what your current arrangement is, affiliation model, and how that compares to the RIA model.

As I always tell people, I help advisors understand everything there is to know about why and how you might want to transition to the RIA model. Book ownership is just one example of why you might want to transition to the model. I’d be happy to have that conversation with you.

If you’re not already there, head on over to TransitionToRIA.com. Lots more videos, the whitepaper that I mentioned, there’s all links at the top. And then the easiest path to really start discovering these sorts of things is just to reach out to me. At the top is a contact link, you can instantly schedule a date and time for us to connect. And I’d be more than happy to start having this sort of dialogue with you about helping you understand your current situation and what a transition to the RIA model might look like for you. I’d be happy to have that conversation.

With that, short and sweet question today. I hope you found some value in it. I’ll see you on the next question.

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