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The more I talk to dual-registered advisors, the more I hear that many of them are looking to get out of the brokerage business entirely and operate as a fee-only RIA firm. If this is something that has crossed your mind, here are the pros and cons and what you should consider.
The money, honey
Whenever an advisor tells me he or she is considering “going the fee-only route,” as they commonly put it, my first question is about the finances. So many advisors would love to be an independent RIA firm, but who wants to leave a trailing revenue stream of $500k or more?
This is especially true for advisors who have been in the business for decades. It’s hard to walk away unless you have a compelling reason to believe that you’ll be able to replace the lost revenue by finding new business elsewhere.
The question then becomes how much stronger your firm becomes as an independent RIA. Is the freedom worth the price?
Let freedom reign…or maybe not
Operating as a pure RIA Firm has huge advantages for your marketing. As someone who makes her living talking to advisors, I can tell you that there’s no comparison between RIA and broker-dealer compliance. In extreme cases such as Merrill Lynch or UBS, you can forget about having any individuality or distinctiveness in your marketing.
No, let me correct myself. You can get some customized marketing, but you’ll have to engage in vigorous combat for it. And that’s because it is entirely in the interest of these big brands to preserve their own brand name. They’re trying to protect their image. It’s their image first and yours second. You have the advantage of working for a household name that everyone knows.
But you pay the price.
They’ve structured the compliance process so that it’s so time consuming for the advisor that most of them naturally give up. Smaller broker-dealers tend to allow more flexibility.
In most RIA firms, external compliance is rarely used. The compliance process consists of the president or chief operations officer scanning the document for flagrant compliance trigger words such as “always” or “guarantee” and then calling it a day.
They do tend to get away with saying some pretty loaded claims that would never get through a broker-dealer compliance program. For example, I’ve seen a firm claim that its performance was better because it was an RIA. Most RIAs won’t face any regulatory headwinds because the government has its hands full trying to catch the criminals. There are tens of thousands of RIA firms and they can’t go after everybody.
The power of trial
I’m biased because digital marketing is what I do for a living. I’m not saying that everyone (myself included) becomes an overnight success on the internet.
What I will say is that the ability to use the “try it and see” method is very powerful. What I mean by that is trying one thing and seeing how it works, and then adapting it to get better results. Do this over and over again, apply intelligence, and eventually you’ll make it work.
I’ll give you an example. One client of mine started a guest blogging program. The first few months we didn’t get any results. Then we changed the call to action and put the blog on a higher ranked website, and tick, tick, boom, the business blew up. There were 75 responses to the call to action on one blog post – more responses than she could manage.
Nobody gets it right the first time. Making a digital mistake can often be way cheaper than a physical marketing one. And way faster, too. The ability to quickly reverse direction at a low cost is the advantage that advisors who use the Internet will have over those who don’t.
As an RIA, you will have much more freedom to experiment with internet-based marketing and service models than under the broker-dealer model.
I’ll give you another example. The other day I was at lunch with a client and his team, and we were thinking of putting together a conference this quarter. My client was discussing the steps we’ll need to take to get a panel together, etc.
I stopped him right then and there and asked this question.
With all the time, effort, and money it’s going to cost you to host a conference, how do you know the topic is going to be something people actually care about?
I then suggested writing a blog or some white papers to test out the audience’s appetite for content before we held the conference.
The Internet gives you the power to try out content for size. Many times I use my blogs, newsletters and videos to see what generates responses from my readers. I’ve had some really juicy pieces that very quickly lead to new clients. For example, there was one video that over 40k people watched. I’ve had articles in Bloomberg go viral. It wasn’t like these were my first or second blogs or videos. I had to learn through trial. It can take a little bit of “guess and check” to find the right button to push.
The leopard changing its spots
The world is moving away from brick and mortar. Business is less physical than ever. The way people communicate is fundamentally changing and if technology is not on your side, especially the Internet, inevitably you’ll fall behind.
If you do elect to drop your broker-dealer status, you may have to rebrand your firm. Messaging changes when you have a different ideology behind your service model. You don’t just change the signage on the wall. It’s a confluence of factors, and, if it’s done wrong, it will become very chaotic and expensive.
If you are considering going the pure RIA route and have questions about how to do it, please feel free to go ahead message me through APViewpoint or reach out via email.
Sara Grillo, CFA, is a top financial writer with a focus on marketing and branding for investment management, financial planning, and RIA firms. Prior to launching her own firm, she was a financial advisor and worked at Lehman Brothers. Sara graduated from Harvard with a degree in English literature and has an MBA from NYU Stern in Quantitative Finance.
Read more articles by Sara Grillo
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
