Leaving the Nest? Advisors Are Choosing to Go Independent.

4th Aug 2020

Advisor working from home

The global health crisis has not deterred advisors desire to go independent. Many have discovered that managing client relationships from home works well and are questioning their current ties to wirehouses and traditional firms. They also are empowered by new wealth management technologies and the potential to earn more income by being independent.

RIAs Can Personally Benefit from a High-Contribution Retirement Plan

At Dedicated Defined Benefit Services, we work with financial advisors and many are Registered Investment Agents (RIA). RIAs are fiduciaries, advising high-net-worth individuals on investments and managing their portfolios. RIAs have a fiduciary duty to their clients – they are required to provide investment advice that always acts in their clients’ best interest. However, saavy advisors making high income should reflect on their own retirement needs.Because RIAs have the potential to earn higher income than broker-dealers, they also are in a better position to set themselves up for financial independence during retirement with a high-contribution retirement plan such as a Defined Benefit plan.

Why Advisors Are Going Solo

The pandemic has increased a desire among advisors to have more flexibility and greater control with the client experience. A 2020 TD Ameritrade survey found that 40% of brokers reported being “more likely” now than six months earlier to go independent. One third of survey respondents indicated that the health crisis and market volatility may postpone their plans to go independent, but that interest in starting or joining an RIA firm remained strong.

Many advisors say they are leaving traditional firms because they want to serve their clients better and offer the highest level of service.  Because Advisors value the relationships with their clients, they want to provide lower-fee investment services. Plus, being an independent RIA allows them to be flexible and adaptable to client needs.

Another reason advisors are leaving wirehouses is the lack of a succession plan –including being able to provide a continuity strategy for serving clients. When advisors go off on their own, they are often able to offer a reduction in fees. In addition, compliance is much easier as an independent RIA than as a registered representative with a broker-dealer.

Starting Your Own RIA

Many advisors say that when they switched to their own firm, they were able to focus more on taking care of their clients, streamlining the cost structure and controlling their expenses. Not to mention, they earned much higher income.

In order to be successful, advisors need to adopt several practices. According to Schwab’s 2020 RIA Benchmarking Study, the top 20% of performers used the following:

  • A written strategic plan
  • A written succession plan
  • An ideal client persona
  • A documented client value proposition

The adoption rates of these tactics by top-performing firms ranged between 66% and 75% compared with 44% to 66% for other firms, according to the study. An ideal client persona and client value proposition attracted 28% more new clients and 45% more new client assets in 2019 than other firms because of these practices.

Also the top-performing firms used digital technology such as texting, e-signatures and virtual client meetings and screen sharing more frequently than other firms, says the study. They also had a greater focus on net organic growth which can help offset volatile markets. More of those firms also adopted standardized workflows within their customer relationship management system for more than 50% of tasks, according to the study. These results suggest that embracing new technology can give advisors a leading edge.

Are you an RIA looking for tax savings and an opportunity to catch up on your retirement savings? See how much you can contribute and save in taxes with our Defined Benefit plan calculator.

 

 

 

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