Financial Advisors are entrepreneurial by nature. Many begin their careers as Advisors under someone else’s flag, enjoying the unlimited opportunities the industry offers, before eventually settling on the decision that it is time to start their own Firm. However, that decision brings with it many more decisions to be made, starting with the decision to form your own Registered Investment Advisor or affiliating with an Independent Firm.

Registering a new Firm with the SEC or state regulators is a cumbersome process and can be expensive to outsource depending on the complexities of your business. And registering it is just the beginning. In total transparency, my first examination two years into owning my own Firm was the starting point to my decision to eventually sell it. As your own RIA, compliance of state and federal regulations ultimately falls on your shoulders. You may hire an outsourced compliance team, but if they make a mistake, they are still your responsibility.

Many Advisors opt instead to join an Independent RIA or Hybrid Broker/Dealer. These Firms are your insulation from the regulatory authorities, and you serve as an independently contracted representative of their Firm but operate under your own brand and typically with your own LLC.

Independent Firms typically strive to minimize their involvement with your business, usually opting for generic branding to allow your Firm to stand in the spotlight with your clients. They provide compliance supervision and access to technology for typically lower rates than you could negotiate on your own, and many will also allow you to integrate your own vendors if you prefer. Payouts to the Advisor will range from 85% to 99% depending on the Firm and your production, and many are even introducing flat rate pricing which can greatly benefit teams managing more than $100M.

When comparing Independent Firms, we would encourage Advisors to take special notice of the platform Advisory Fees, as many Firms have started to use this as a way to disguise the true economics. For example, many Firms will claim that the Advisor receives a 100% payout on revenue but attempt to glide right past the 30-basis point platform fee on advisory assets under management. While you may charge 1% and make 1%, the client still thinks they are paying 1.3%, (because they are). And 1/1.3 is not 1.00.

Not to say that platform fees are bad. In fact, most Firms will charge them in one way or another. But Advisors should take them into account when calculating the payout. As a general rule, Advisors managing more than $100M should be able to find an independent partner with a true net payout in the 90-95% range, and it should gradually approach 99% as production increases. With such a tight payout range, the ultimate decision of who to use will often come down to non-financial matters, such as reputation, technology, support, and management culture.

Advisor Advocates partners with Independent RIAs and Broker/Dealers to help you explore your options and find the best fit for your practice. Save yourself time and cut through the noise by allowing us to quickly narrow your search for the best financials, technology package and management culture for your business. Call or text 919-561-2436, email Garrett@theadvisoradvocates.com, or schedule time on my calendar for a Zoom or phone call at your convenience.

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