Starting your own IA is exciting, but some of the steps to get there can be challenging. In this Oyster Stew podcast, our experts discuss what motivates people to start their own RIA, what’s involved from a high-level view, and some things we’ve seen that work and don’t work.
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Starting your own IA is exciting, but some of the steps to get there can be challenging. In this Oyster Stew podcast, our experts discuss what motivates people to start their own RIA, what’s involved from a high-level view, and some things we’ve seen that work and don’t work.
Oyster Consulting has the expertise, experience and licensed professionals you need, all under one roof. Follow us on LinkedIn to take advantage of our industry insights or subscribe to our monthly newsletter.
Does your firm need help now? Contact us today!
Hi, and welcome to today's podcast. One of several, we will be produced about starting your own registered investment advisor or RIA I'm Libby hall. And with me are some of oysters, RIA experts, buddy Doyle, Sarah Sutton, and Jay Donlin. Today, we are going to be discussing what motivates people to start their own RIA. We'll look at what's involved from a high level view and talk about some things we've seen that work in some it don't buddy. Why don't you take it from here?
Speaker 2:Hi everybody. I'm buddy Doyle. I'm pleased to be joined today by Jay Donlan and Sarah Sutton, two of our experts on RIA and have helped a number of our clients move from where they were to where they're going. And I think that, uh, we're pleased to have you here, Jay. Sarah. Welcome.
Speaker 3:Thanks buddy. Thanks buddy. Good to be here, buddy. One of the things that, um, that people always think is, Hey, I want to go start my own RIA and that's great, but there are several things you have to be aware of when you go do that. One is, do you wanna run a business? Do you feel like you have the Thea to run your own business, make your own HR decisions, make your own real estate decisions, make your own tech stack decisions, uh, custodial decisions, all these decisions that have to be made in order to, in order to have a, an RIA. One of the things that we are finding in, in the marketplace is this explosion of FinTech. And there are hundreds upon hundreds of vendors out there that you have to go through and make a, make a decision.
Speaker 2:There is a process you need to go through to start a business and, uh, having a business plan and a rarely do we ever see a, a business plan that fails in projection. But I think that it's that thoughtful process of going through that. And, uh, Jay, one of the things I know you, you guys do is you're, you're the objective voice of, of are you, are I too over optimistic? Am I too pessimistic, uh, about things and<affirmative>, you know, one of the things that, that we often hear from firms, particularly the ones that are losing the wraps to go out and start their own RIA is they're chasing less regulation. I actually think it's a different regulation, but I'm, I'm not sure it's. And Jay, I think, you know, you started out with a lot of these things and I think about investing in your platform and your tech stack and all those kinds of things, deciding what products you want to offer to your clients and how you want to serve them. You will be a fiduciary for your clients as an RIA and, and depending on your capacity and what you work with them, that can mean slightly different things, but it's still a very high bar, uh, for you to meet. But if you're investing in all these plans, uh, in, and you're investing in all these platforms, you also need to invest in profitability, Jay, any thoughts on sort of the process of going through your financial projections and your, your wants and your needs?
Speaker 3:Yeah, buddy. Um, one of the things that we hear, uh, when people are exploring, starting their own own our I a is who am I gonna choose as, as a custodian? And that's an important question, but a lot of the custodians today, the top three, especially do a lot of the same stuff. And they're very similar pricing. The more important question is what FinTech am I gonna use? These portfolio management systems and various client reporting systems that are out there. The there's been this explosion in FinTech, that's created, um, all these different products that RAs, uh, and advisors, uh, need to kind of navigate through. And that has becoming the more important question, which FinTech stack am I gonna build? There's cost with that, you know, there's D various levels of cost across these vendors. Some cheaper than others, others are a lot more rich functionality can vary based on that, that type of, uh, structure. So one thing that people think is, well, if I, if I go out on my own, then I get a hundred percent payout and that's true. You do get a hundred percent payout, but there's a lot of costs associated with that. FinTech is one of them, operation compliance costs, just various, uh, things that you may not think about are costs that are associated with that. So one thing that RAs or advisors need to think about is how much do you wanna make at the end of the day as the business owner and making a profit is of course, what everybody wants to do in their own business. Um, but it, it also is just the owning your own business, the security in that, and, and just the, the ownership value of that business is what you're building. And that's a great thing to do.
Speaker 2:Yeah. And I think owning a business comes with a lot of challenges. How many payroll systems have you run as a financial advisor at your independent rep firm or your wire house? And I, I will say there's a different path for independent reps versus folks that are in a, a more, what do you want to call it? A wire house, a traditional firm, a regional firm, whatever you wanna call it, they've got all kinds of labels for, for describing things. Uh, I think tradition may not be applicable anymore because we've had, you know, hybrid RIAs and standalone RIAs for so long. But I often talk to, to financial advisors or investment consultants or whatever brand you put on yourself, and they talk about their firm, taxing them, uh, and that's, but with taxes comes service and with taxes comes benefits. And I think that when you look at what they're doing for you, in terms of payroll and your, your computer, your monitors, if something happens and there's a cyber breach, do they call you or do they just handle it? And I think all those things start coming your way as a business owner. And there are various ways to handle that there's as many ways to handle that as there are challenges is, uh, that come at you, but rarely do you see somebody start an RIA and come out of the gate with a 90% profitability, you know, margins just don't work like that. So if your firm's taken 10% or your firm's taken 6%, right, how will you look at the end of that is, is part of why you want to do your plan.
Speaker 3:Yeah, buddy. And, and I'll just jump in on that. COVID has basically, I guess, stoked the fire a little bit more on this conversation. So everybody went home, all the advisors went home, they started working at home. They worked at home for, you know, six, nine months. In some cases, some, some cases they haven't been back to the office and they realize they're like, wait a minute. Well, I can do this. You know? And so they think, like you said, there's a whole infrastructure at oyster. You know, we kind of already had that infrastructure because, you know, we, we were remote anyways, a lot of us, but a lot of these firms, a lot of catching up to do and getting remote and, and being able to, to efficiently work from, uh, their other houses or other remote remote locations. And, um, and so all that, there was a cost to that. And so if you had your own RIA, you gotta look at situations like that as well. You know, how am I going to do that? It's a lot easier now because we've kind of figured out the rubish cube, right. But, uh, you know, those are other, that's just one situation. There will be, there will be other situations in our industry that will impact kind of small business owners, so to speak. We just don't know what they are. And you just have to be ready as a business owner to tackle those challenges.
Speaker 2:A absolutely. And I think the adaptability to changing conditions, we certainly have gone through this here, as we've gone through the pandemic and to Jay's point air firm, a consulting firm with people around the country, we're a little bit differently prepared for this than folks where you're all one office and you're all together and things like that. And the pandemic certainly taught a lot of their clients, a thing or two about business continuity planning and, uh, how to deal with the impact of sudden changes in, in the environment that you're in from fires to whatever. Right. And that's the case to pandemic sent us all home. We all took different tax there. And the innovation that came out of all of that and the ability to, to be remote now is, is certainly there, it opens up more options for you, Jay, any, any thoughts on some of the disadvantages of, of decisions that, uh, folks have made that where they've sort of seen some, maybe the grass wasn't greener?
Speaker 3:Uh, yeah, buddy, I think we touched on a lot of it. What am I gonna be? Am I gonna be a fully cussed, you know, each individual portfolio is fully customized and I'm gonna manage each client tax efficiently and, and whatnot myself. Um, that, that takes a tall order. I mean, it takes a lot of work to do that. Um, and, and that may be what you want to be as an RIA. Um, but you have to realize, you know, there's capacity issues with that. You know, how many clients can you effectively manage if you take on too much, um, the regulators are gonna look at you as well and say, well, are you providing value to everybody? Are you providing what you're saying to everybody? So you have to be cognizant of that. If you choose a custodian that has, you know, kind of these canned, uh, uh, products, um, you know, they, they're running say a tamp on their platform, uh, turnkey asset management program, and you're gonna leverage their, uh, services, you know, are they, are they providing value, you know, to the client? Is it impacting the client from an expense perspective, uh, you know, in a market reasonable rate, you know, and that will create capacity for you, but these are all the decisions, um, that people make. And, and if they, if they don't thoughtfully decide kind of what they want to be, um, you know, you can have a, a mess on your hands. And so it's just, it's a good, uh, exercise to go through, um, at the start to just make sure that you are making the right decisions for your business and your clients, um, so that you don't create a mess for later on.
Speaker 2:Yeah, I think as a business owner and, uh, entrepreneur, I, I think one of the key skills that you need to have is the ability to say no to some things you can't chase every shiny object. You have to make decisions. You have to prioritize the largest financial organizations in the world, have to make decision and prioritize UL as well. And I think that's an important thing to keep in mind. And I, I think there's a, a lot of valid reasons though, why people do wanna start RIA and why they wanna, uh, get out there and, and take this on. And for me, when I started oyster, it was about creating a business to last and creating a, a kind of special place to work and a different point of view than I'd seen in other consulting organizations that I had used as, as vendors. But I think, uh, maybe Sarah, Jay, you guys could kind of run through some of the rationales you've seen for starting an RIA that really stick and that have meaning and drive success. Any, any thoughts there? Yeah,
Speaker 4:Buddy, I'll jump in. Uh, so one of the things I think is freedom. It's the, it's the freedom to make the decision on where your office is, and who's in your, who's on your staff and who's on your team. And, you know, being able to build it out the way you want it really being able to, to take charge and, and own the business and build something that is, you know, obviously hopefully profitable. Um, and then, you know, have, have the ability to, you know, have a succession plan later on. Now you can do that, you know, in, in the warehouse space too, but it's a little more limited and you can't structure it the way you may or may not want to. So I think from that aspect to just kind of looking at what, what do you, what do you want, what kind of legacy do you wanna leave behind? Um, if you want a legacy at all. And I think too, it just helps to when you have the possibility of doing and creating something, I think that is very exciting. Um, especially with the folks that have been in the industry for a long time and just starting out when, when somebody's telling you, you have to do something a certain way, sometimes that may not be the way you want it to work. And you have the opportunity to really take advantage of, you know, making sure you have all the right members on your team, making sure that you're offering products that you stand behind, feel comfortable with and have the ability to, you know, be flexible. It's not such a rigid structure that you have to fit in and conform with. It's more of a, you know, if you want to only work four days a week, it's fine. If you wanna work from home two days a week, it's fine. You know, there's not that, uh, and that overarching level of management and leadership that may or might, may be driving you to, you know, reach additional goals. A lot of the folks that are in Thea space are like buddy mentioned entrepreneurs. Um, they're already doing it. That themselves, they don't may, may not necessarily need someone leaning on them. They're a good job of that on their own, but at the same time, you know, wanting to do that and then actually doing it are two totally different things. And I think that's one realization that some folks come into, uh, that realize, you know, either up shortly up to, or shortly after they've, they've made that leap. And once you've decided to do it and you started the process, it's hard to go back. So I think that it's something that you really like buddy had mentioned earlier. You really need to, to do your homework, do your due diligence, just as what you would with, you know, something that a client should invest in, you know, is it something that you truly want to do? Is it something that you truly feel that will grow that you'll succeed at and that you'll enjoy?
Speaker 3:Yeah, buddy, I'll, I'll jump in on some, some things we kind of talk a little bit about this, uh, velocity and expansion of FinTech. And, um, a lot of times people, uh, that have been in these traditional large financial services organizations just make the assumption that, oh, my firm is on the cutting edge. Well, generally that's not the case. Uh, and it's because of the velocity of change and the velocity of product X that are being created. And so you might, you may look at what you're utilizing as tools to effectively manage your clients today and say, you know, if I just had X, I just had Y if you create your own RIA, you can go get X and you can go get Y and not have to wait on that on your large firm to go through a process of, you know, vendor acquisition and integration and, and whatnot. You have the ability to make that, that decision and, and that investment, you know, into those. And sometimes it's just the little things. Um, I was talking to a client one time and they said, you know, my firm has an office downtown. And that's where our office is, is all my clients are 30 minutes out from downtown and they don't want to come downtown. If I open up my own office, I'd have it out where my clients are. Sometimes your clients wanna see you, you know, they're, they don't want to come downtown. They don't wanna fight parking. They don't wanna fight the one way streets or whatnot. And so sometimes those are the little decisions like that, that, um, you know, you can make, you can say, I'm gonna open my office out where my clients are. Those are the things that, uh, give you the flexibility when you create your own organization to make those decisions.
Speaker 2:Yeah. You get to be a lot more nimble when you're running, uh, your own smaller organization. If you, if you think about, I J you talked about the, the evolution of technology that has been going on, and it's, it's changing faster than it ever has and slower than it ever will again. And I think that those large organizations to change a platform that 15,000 people are, are using to run their core business on that they're serving their clients with is a lot different than you making a decision that might impact 15 advisors or just you. And they've gotta process. They've gotta go through to manage that change. Your process needs to be somewhat different in that. Am I risking my business by using this platform and what's out there and what's, what could that mean to my customers? There are things you'll have to do that they do for you today. And you'll be expected to understand the cyber security program am that the vendor you're selecting is, is utilizing to make sure you're fulfilling your fiduciary obligation to your clients, to protect them from criminals. So I think all those kinds of things you can do and you can do well, and you can do efficiently and effectively, but it is a little bit different and you do have a lot more control. And you certainly, from my experience will be able to move faster than you could, but it's you moving it. And it's, you're, you're making the things happen, uh, in, in your own firm, which really feels exhilarating and terrifying. I think it's, uh, it it's, it's really good. I, some of the folks I know running organizations, you know, will tell me, I feel like I've got my feet in an ice bucket and my hand on the stove, cuz I'm so, so excited and scared. And you know, I mean having these different sensations and those are people who thrive in this entrepreneurial, uh, P period, but it doesn't have to be that way either. You can run a pretty satisfying lifestyle type business, as well as an RIA. There are so many options out there for you. We're gonna certainly be going through a series of podcasts. Uh, we've kind of done some introductory stuff now and things to consider. Uh, one of the things that will help us make this podcast more meaningful for you guys is, you know, we've shared some of the stories we've heard from our clients about why they wanted to start an advisor, some of the things that they've gone through and challenges, but we'd love to hear from you too. If you're thinking about starting an RA, what's your motivation for doing that? What are you trying to achieve? And I think it'd be fantastic to, to hear those different things so that we can share those if you're okay with it, to our audience and, and maybe make them make better decisions that with that, we're gonna wrap it up for today, but we will be back for a future episode.
Speaker 3:Thanks buddy. It's for, and a pleasure to be on this podcast and to just try to help people, uh, navigate these important decisions. And, uh, we look forward to helping'em.
Speaker 4:Thanks, buddy. I hope that everyone has a chance to really kind of dive in if they're interested in going down the RA path and, uh, always know that that we're are here to help them make the decision on whether they would like to do it or not.
Speaker 2:All right. And thank you guys for sharing your wisdom and experience with, with the listeners. Thanks
Speaker 4:Everyone for listening. Join us for our upcoming podcast. Focusing on
Speaker 1:The regulatory perspectives of starting your own RIA. If you'd like to learn more about how oyster can help you start your own RA, contact us@oysterllc.com and we'll be happy to chat. If you like what you heard today, follow us on whatever podcast platform you listen to and give us a review reviews, make it easier for people to find us. Thanks and have a great day.