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Four Points to Consider When Vetting an RIA Platform

January 15, 2015

When financial advisors break away from a firm and start their own, as I did in October, it is essential for them to prioritize what they want from an RIA platform. Otherwise, they get sidetracked by the daily distractions of being entrepreneurs and can’t focus on their first priorities: taking care of people and managing money.

As I worked through the selection process to choose a partner, I decided my RIA platform had to meet four main criteria, including providing initial financial backing. Other advisors may have different needs from mine. But the requirements I set for myself may help them outline their own standards, based on their individual goals.

1. Financial backing to get started. When financial advisors start their own firms, it can take six months or longer to bring over clients and start generating revenue. Too many don’t succeed because of monetary constraints. An RIA platform with resources to help them ride out this early period can make the difference.

Advisors should ask a number of questions up front. Are the platform’s principals financially secure in terms of their own personal net worth? Are there any equity partners outside the firm? Overall, the easiest way to see if the platform is financially stable is to look at how much money an advisor can borrow from the aggregator.

A full-service platform that provides operational infrastructure — technology, compliance and accounting — will also save FAs a bundle in start-up costs.

2. Quality senior team. A new practice should have a senior team in place, including a chief financial officer, chief compliance officer, CPA and tech staff. And these positions should be filled by people who understand the financial-advice business.

Ultimately, advisors should avoid partners who are constantly in front of them and their clients. Such interference is a big red flag. They need the flexibility to leverage their RIA partner as much or as little as they like.

Another question to ask is whether these partners are truly responsive. Do they default to “no” when asked to make a change or to add something new? Positive answers are a good sign, as they mean the RIA platform probably has experience with that particular issue and can help.

3. Client-first philosophy. Good advisors put their clients first, and they need an RIA platform that takes the same client-centric approach. One indicator of a client-first philosophy is fairly sharing credit for a success. Advisors should be concerned if the RIA partner inserts itself between them and their clients by taking credit for a positive outcome.

If this is a problem, advisors should ask how the RIA platform is incentivized. Does it make money only when advisors make money? Or can the partner firm go around advisors and offer another level of service directly to advisors’ clients? An advisor’s partner firm should be profitable only if the advisor is profitable, period. Otherwise, a conflict of interest arises, and money always wins.

4. Quality of life. Advisors who start their own firms with the support of an experienced RIA partner can benefit from more flexibility. As a new father, I want to spend quality time with my family. I can do that now because my business is well organized and structured.

These four criteria were must-haves for me. Of course, other advisors may have additional requirements. The key is having a road map, so they can say after the dust has settled — as I do — that breaking away from my previous RIA was the smartest decision I ever made.