For entrepreneurial advisors questioning the best next step for their business, the independent space offers several options—yet there are four that provide the highest level of freedom and control for those who manage over $500mm.

It’s not unusual for advisors to hit certain points in their business lives in which they start wondering whether their current firm is still the right partner for their business. Perhaps they are sensing that their goals are no longer well-aligned with the firm. Or they crave greater freedom, flexibility, and control in how they serve clients and grow the business. Or they begin to look more closely at the value they are receiving in exchange for 50%+ of their revenue. Or they feel a strong pull towards the opportunity to become business owners and build an enterprise based on their specific goals and vision. Or any combination of the above.

This inquisitive, forward-thinking mindset has driven a wave of advisors toward the independent space—which has responded in kind by growing to include a wide variety of options for advisors at just about every asset level. (See Emerging Enterprises – Independent Paths for Advisors Managing $100mm or Less and Built to Grow – Independent Paths for Advisors Managing $250mm in Assets)

Yet it’s those who have made their mark in the brokerage world, building strong businesses that manage $500mm or more in assets, that have the widest range of options when considering their future—and for a variety of reasons. First, these practices have developed the scale to reinvest in the business while maintaining a healthy margin. They also have a well-developed team designed to handle the non-revenue generating functions so advisors can focus on growth. Plus, they have built the type of practice where the long-term M&A valuations of their independent businesses dramatically exceed the value they could extract from a retire-in-place program or transition check from another W-2 firm.

For some, the solution is to deal with “the devil that they know” and barter with their firm for better payouts and services. Or they may opt to make a “lateral move” to another wirehouse, where they can take advantage of a recruiting deal on the way in.

Alternatively, many find that employee models offer diminishing returns beyond the $500mm AUM mark and are more attracted to the prospect of taking control of how revenue is generated—and building a business that is focused on driving enterprise value.

It’s this contingency that most often opts for independence—the registered investment advisor (RIA) model, in particular.

And while many may think that the RIA path is a singular one, there are actually 4 to consider:

1. Supported Independence: Joining an established RIA Platform

These are multi-billion-dollar organizations built to offer the support that a large team at the wirehouse may have become accustomed to—services such as on-staff tax professionals, legal support, and financial planners. On the investment side, many of these firms leverage their scalability and “true open architecture” to offer access to direct private investments and top industry money managers and enable advisors to advise, report, and even bill on assets held away. Additionally, these firms have tenured transition teams, project managers, and attorneys at the ready to support your legal and administrative transition to independence.

While joining a supported platform comes with a bevy of scaffolding and support, what you may sacrifice is the complete autonomy and control of running your own RIA with your own ADV. This can potentially cause conflict if you’re running a unique business that the parent firm is unable to support and needs to be uncovered in the due diligence process.

For the advisory team looking for a robust platform, multi-custodial options, like-minded culture, and a seat at the table with a successful organization while also maintaining the ability to outsource day-to-day CEO functions, partnering with an existing RIA is a smart choice.

2. Supported Independence: Launching an RIA with a service provider

This version of supported independence allows an advisory team to launch an RIA with their own ADV, achieving complete autonomy and control of their business while still leveraging the resources of industry-leading strategic partners. While the managing partners assume 100% equity and control of their RIA, they employ the resources of industry-leading compliance, HR, benefits, legal, billing, and investments, as well as an elite transition team, all located under one roof.

A model that was hardly on the radar 10 years ago, it has since become one of the most popular avenues for the advisor who wants to wear the CEO hat but outsource many of the others. The $500mm+ teams often find that the economics of this model makes more sense than their $250mm counterparts due to the size and scale of their business.

That said, leveraging the services of the industry’s best does not come cheap: Engaging a high-level service provider will require both an initial capital investment by the transitioning team as well as the ongoing basis point charge. It is up to the advisor to equate the value they receive to the initial and ongoing costs.

3. M&A Partners

Most who see the title “M&A Partners” might initially think they’re “selling” their practice; however, this is a frequent misconception. Yes, many M&A partners are strategic buyers, but likewise, many are often strategic partners.

Advisory practices in this space can unlock significant capital via a liquidity event and are provided access to the best resources and referral networks in the industry. The advisors who thrive here usually are approaching succession or require capital to buy out a retiring partner, are looking for a strategic partner to assist with sub-acquisitions and recruitment, or are interested in taking chips off the table given record-high valuations.

The M&A avenue for advisors looking for independence is vast—from minority investors who acquire 10–30% of an advisor’s practice but enable a business to retain autonomy and their own RIA, to mergers where equity is the primary currency in a transaction to full integrators (in which you fold into their firm) and aggregators (who buy your firm and offer infrastructure, but you maintain your brand).

While no two solutions are created the same, many strategic M&A partners embrace what made the advisory practice so successful in the first place—including investment philosophy, branding, and firm goals. But any sale of equity must be weighed against parting with upside potential and future optionality.

4. Launching an RIA firm directly with a custodian

While a direct RIA launch can be made at every asset level, it becomes exceptionally attractive for those at or above the $500mm AUM range. With a 100% initial payout, these teams can allocate their resources how they best see fit. The millions of dollars once paid in haircuts and fees now become margin the team can reinvest in their business.

Economics aside, the RIA model allows these hyper-entrepreneurial advisors to take full autonomy and control of their practice, answering only to the clients and regulators of the SEC. Additionally, the RIA marketplace offers a deep bench of third-party service providers that an advisor can leverage to outsource specific functions (like compliance, money management, planning, and taxes), so they can focus on other tasks they are better equipped for.

While it’s true that a direct launch of an RIA will likely offer more favorable economics than leveraging a service provider, the trade-off for advisors is the need to expend additional human capital, not just towards the transition but in building out the practice from a regulatory, technology, HR and administrative perspective, as well as the ongoing work of running the RIA.

As of 2021, the RIA model is still the fastest-growing segment in the industry. That said, an important consideration before taking the plunge into the RIA world is knowing your risk appetite and your motivation to work ON a financial advisory practice as much as working IN one.

In the end, it’s in-depth research, due diligence, and an honest evaluation of what you are trying to solve for that will be the driving force on whether any version of “independence” is right for you—and the business goals you are looking to achieve.

As seen on InvestmentNews…

Related Resources

• Built to Grow: Independent Paths for Advisors Managing Assets in the $250mm Range

• Emerging Enterprises: Independent Paths for Advisors Managing $100mm or Less