Traditionally, a financial advisor's career path begins at a large-scale brokerage firm or wirehouse. For years, industry professionals took this well-worn career track, leveraging a big brand name and established institutional processes to build a book of business. However, over the last decade, there's been a pronounced shift from brokerages to RIAs as entrepreneurial- minded and client-focused advisors break away from the old ways and toward professional independence.
The reason for the mass migration is clear; independence fosters happiness, a better sense of on-the-job fulfillment and increased earning potential. According to Charles Schwab, 90% of RIAs are completely satisfied with their move away from the world of captive brokerage. Ninety-four percent of them prefer independence because they're able to do what's right for their clients. Add to that the fact that in many scenarios, RIAs are able to retain 100% of their advisory earnings, and the impetus for the shift becomes clear.
Choosing The Right Model For You
Going independent isn't a one-size-fits-all proposition. There are different methods for emancipating yourself from the big wirehouses and striking out on your own. The primary choice is whether to go all in as an independent RIA or join a “Shared ADV” model, commonly referred to as a tuck-in model. It's critical to understand the key differences between the two routes.
Shared ADV/Tuck-in Model
For advisors curious about independence, giving up your existing brokerage firm's infrastructure can be an intimidating proposition, but by joining an existing firm (“tucking in”) those fears can be mitigated. Tucking in is the middle ground between a wirehouse and the independence of starting your own RIA firm.
With the tuck-in model, you have pre-established infrastructure available and don't have to worry about the operational considerations that an independent business owner would. By choosing the tuck-in path, you will likely have access to the existing firm's technology and compliance program. In essence, the tuck-in model is more of a "plug and play" approach. It allows advisors to retain some of the institutional structure that is a benefit of a wirehouse while gaining some of the freedoms that come with being in the independent space.
With the independent RIA model, you are the business owner and therefore enjoy unlimited potential for customization. Typically, if you choose to become a fully independent RIA, you completely guide the direction of the firm and are responsible for building out the infrastructure, resources, and overall business. While that may sound daunting, there are a variety of service providers that offer middle and back office services along with industry expertise to help you build a practice around your needs and goals.