During the past year, I’ve noticed a trend that promises to have a bigger negative impact on large independent RIAs (with more than $500 million in client assets) than the lack of a full-time CEO.
Many advisors have contacted me about leaving their current RIA firms to set up their own businesses — the majority being my new client prospects. And worse, that number appears to be growing.
It’s ironic that most owner-advisors of independent RIAs started their businesses to escape the pressures and conflicts of the “financial services industry,” only to recreate a similar environment in their own firms.
While many independent RIAs have grown dramatically in the past decade, a significant number of these also have adopted the “production” and “revenue” quotas that used to be typical of only the sales side of the industry.
Consequently, when advisors leave to start their own firms, it’s not due to making more money, but rather, to gain more autonomy in how they work with their clients and reduce the pressure to grow the number of clients.
Today’s larger firms may think their biggest current challenges are fee compression and maintaining their margins, but I suspect that a high turnover rate among their professional employees will prove to be the biggest impediment to their success in the near future.
Next week, I’ll talk about what larger advisory businesses can do to reduce or even eliminate this looming professional brain-drain. But today, I want to talk to the growing number of advisors who are thinking about jumping ship.
I’m not going to try to talk you out of it.
The history of the independent advisory industry has been built on advisors jumping ship from somewhere, even if leaving RIAs to do so is a relatively new phenomenon. But I am going to walk you through your decision so you can be reasonably sure you’re doing the right thing for the right reasons.
Here are some thoughts to consider:
1. Ask youself if you really want to have your own business.
From a business perspective, there are two kinds of people in the world: those who want to be their own boss, and those who are more comfortable working for somebody else. It comes down to how much you value freedom verses how much you dislike risk.
Some people just don’t like the idea of others telling them what to do. As you might guess, they often have problems working for someone else. (This doesn’t help much in relationships, either.)
Other people don’t like taking risks. They like getting a steady paycheck that someone else is responsible for covering, and having their potential career advancements laid out in from of them.
So, if you’re risk averse, which is likely considering you took a job in large firm, you need to think long and hard about whether you’re really going to be comfortable starting your own business. Take it from me, owning your own business isn’t easy and often not that much fun.
My advice is that if you don’t really feel the strong want/need to have your own business, you probably should stay where you are, give yourself an attitude adjustment and figure out how to get what you need from your current firm.
Maybe you’d be happier in a different job: moving from financial planner to portfolio manager, or visa versa. Or perhaps you’d do better as a rainmaker.
And, hopefully, articles such as this one will get thorough to the owners of large RIAs and they’ll make their firms better places to work. As a last resort, you always can look for a smaller firm that hasn’t gone corporate yet.
2. Forget the business plan.
If you’re one of the unlucky few who are compelled to own your own business, you’ll most likely need an attitude adjustment, too.