There are many reasons people don’t go independent. Not everyone wants to be a business owner, obviously.
However, I have learned that there are some perceived , and real, obstacles that stop the ones who DO want to be business owners, and I made a list.
After I made the list of what keeps people from launching an RIA I realized that everything could fall into two primary buckets: Fear, and Money.
The Fear list is long:
Will I be a good CEO? Will my clients follow me? Will I be able to have a life? Will my business map over to an independent model? And let’s not forget the fear of the unknown: “I don’t know what I am supposed to know, I don’t even know what I’m supposed to be asking.”
Too many firms take advantage of this lack of knowledge, but that is a topic for another day.
And then there’s the Money.
FAs recoil when they realize that they would lose their deferred comp! Then they exclaim: “I would be turning down 2x upfront from UBS!” This opportunity cost associated with NOT taking a big 9 year deal is probably the #1 obstacle. The kitchen table conversation where the FA tells his or her spouse they are leaving their firm for no “upfront money”? Tough talk. Talk about fear!
And while there are many other factors that weigh on the decision, like age, lifestyle, risk tolerance, the two primary factors that stop advisors from going independent are essentially Fear and Money.
We (riaCapitalSolutions) have figured out how to lower the risks, push up the rewards, and smooth out the path towards RIA ownership.
We call this piece of our Capital Solutions the CFP. (No, not the Certified Financial Planner designation). Cash Flow Protection.
As we dig into your P&L inputs, and build out your EVR, we will add a line titled “CFP”. This is something we have asked our capital providers to plan for, and account for.
Our advice will be to allocate monies to this reserve account in order to take away any worry that there will be any cash flow disruption during the transition year.
It is important to remember that if an FA was doing $2million in revenue on a 45% payout before he or she launches an RIA, all they need to do to match that $900,000 “home economy” is $1.325million at a 68% “payout”. Our CFP modeling is designed to set aside capital in an operating account that will protect the founders’ cash flow.
Let’s walk through our P&L process so you can better understand how we work. Our intentions in putting the money first? We don’t want to waste anybody’s time.
Our resource partners can launch your RIA without you taking in any debt or equity, obviously. However, if Money is an obstacle? If Fear (and all its derivatives) is an obstacle? We are here to help.