Memo to RIA’s – “Three critical steps to long-term success…”

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I’m most often asked by reporters and Advisors about what it takes to create a successful RIA. Sometimes the question is meant to elicit a response about RIA creation, and sometimes about RIA long term success. To my way of thinking they are two broadly different lines of inquiry. I’m going to break it in two, and talk about RIA formation today and what drives a successful RIA next week.

RIA formation is made up of a million small details and decsions that the founders typically make as they go. Often it’s a stop and start process fraught with mistakes. Simplification is worth its weight in gold for start up entrepreneurs, so let’s simplify and just look at 3 critical areas all potential RIAs need to master.

  1. Model. Know who you are. Your model has to be based on your personal beliefs, if not, it will be built on a lie and never work. For instance, if you believe that the Advisor is truly your partner then your equity should reflect that fact, and your firm should be structured as a partnership. If you believe that your firm is more of a platform that provides scalability and high payouts for Advisors, and you, as platform creator, deserve to hold all of the stock, then you may not offer equity at all. In either scenario, you will work to present your model in such a way as to attract like minded entrepreneurs. What you shouldn’t do, is try to be everything to everyone. As an Advisor looking at firms, beware of those that cant explain their models in a way that comports with their personal beliefs.

Your model then, is your personal business philosophy come to life. This means your platform partner needs to share your values. Do not use a scaled up low frill custodian to build a high touch service oriented model and vice versa. Do you plan to grow your RIA? Will your custodian provide financing for that? Interview the big custodians and smaller aggregators until you find a fit.

Finally you have 3 options in creating a deal: upfront money, payout, and equity. Like a car dealer with trade in, sticker price, and interest rate, you just cant get all three the way you want all the time. RIAs have tremendous flexibility, and also their greatest challenges here. You cant create a deal with a huge upfront and a high payout. That math wont work. You have to choose Advisors who understand the value of owning their own businesses as well as a part of yours, those who can actually add up the higher payouts and tax advantages of Independence, and those who understand the importance of succession planning. Not folks looking for a check. Your deal, and your RIA, will not be for everyone, and that’s a good thing.

  1. PR/Branding. If an RIA creates a great model and nobody knows about it then what good is it? Firstly, you need to take your model and turn it into a brand. Your brand is the extension of your personal business philosophy jazzed up and juxtaposed on the busy Indy landscape. What’s different about you and why are you worthy of attention, are the questions you need to be sure to answer in building your brand.

Once you are comfortable with your brand, it’s time to shout about it. There is a conversation taking place among Advisors today. They are hungry for information about the latest models and thinking around Independence. No firm is right for everyone, and you don’t need 14 billion in assets and 100 FAs to declare success, you need to get your unique vision in front of that set of Advisors you will be able to advantage. Public Relations is the only way to do this. It costs money, but it’s much cheaper than traditional advertising, and in the hands of someone who understands what you are trying to achieve, it can be transformational for your firm.

  1. Strategy. You need a plan for inorganic growth. You wont get from 300 million in assets to a billion with client birthday cards and seminars at the Hyatt. A real plan to grow your RIA requires the right type of scalable model, branding, and PR that we talked about. Good strategy requires that each of those facets has to be broken down and built back up.

For instance, it’s one thing to say your deal is 100% upfront, it’s quite another to get the capital to pay it without compromising your firm’s viability or ownership. The best Indies, Hightower, Steward, Raymond James, and the like will work with Advisors/RIAs who want to grow their firms inorganicly, and understand how to finance deals. You can also put together your own financing arm, and profit from doing so. The point is, your corporate strategy needs to detail the achievement of your goals, and fill in the gaps of your broad vision.

Ultimately, if you have created a model that is true to your personal business philosophy then many of these follow through decisions will make themselves.  You either won’t mind giving up ownership to Private Equity people or you will, you will either plan to make the Advisors your partners or you won’t, all because of your values. Knowing who you are, and what you want as an end result, will make the hard work pay off.

Tony Sirianni is one of the most respected voices in the Independent space, and a tireless advocate for Advisors and RIAs. Through his firm , he works with elite Advisors, RIAs and corporations in Public Relations and Strategy. Tony was a founding partner of Steward Partners, CEO and founder of Washington Wealth Management, and an Executive Director and Complex Manager for Morgan Stanley, Smith Barney, and Legg Mason. He has a Masters in creative writing and a JD from New York Law School.

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