Why I Love Having My Own RIA
I have four coins taped to an index card above my desk. Each coin is from a client, and each represents payment in full for services provided:
- The first is a dime from a retiree who got a refund on a $100,000 annuity.
- The second is a quarter from a single mom who received financial guidance during a divorce.
- The third is a quarter from a working retiree who got advice about a variable annuity.
- The fourth is a quarter from a middle-aged man who earns $15 an hour. He got a monthly budget.
The coins represent my passion for protecting clients, and this is why I love having my own business. I have the autonomy to help clients, regardless of what it entails or what they can afford.
A Passion for Protection
There is too much fraud and there are far too many scams out there, so I show clients how to protect themselves using free tools such as Investment Adviser Search from the SEC. When I show clients how to do a background search on my firm, they know I’m serious about protecting their interests.
I recently filled out a personality profile on the TD Ameritrade website, which then revealed my “secret identity.” My alter ego as an adviser is “Firewall,” since I have a passion for risk management and client protection.
This exercise made me realize just how much I love having my own business, and most of my answers reflected the benefits of autonomy.
The Autonomous Adviser
Business is so much easier when you have autonomy. This is especially true for advisers, since you can choose a structure that fits your philosophy and personality. You can also adapt faster to industry changes, such as the shift to fee-only advice and the fiduciary standard.
For me, autonomy means that I can prioritize my time based on client needs and market opportunities and not on some other agenda. The following are the five most important benefits I derive from my autonomy.
1. Selection of Tools
The tools for independent RIAs have never been better. This includes custody, platforms, compliance, client billing, investment research, etc. This is not just an off-hand opinion — I study wealth managers as a consultant. I have published over 1,000 pages of research since 2011, as you can see on my list of publications.
I have chosen to work on the Envestnet platform, which allows me to mass-customize client portfolios using model portfolios of low-cost funds. I can also use unified managed accounts (UMAs) and portfolio “sleeves” that I design myself. Access to the Envestnet platform is inexpensive, and it puts independent advisers on par with platforms run by the largest wealth managers.
Envestnet is just one option. For advisers who prefer to mix and match the tools they use, Alan Moore, founder and president of Serenity Financial Consulting, describes other resources he uses.
Autonomy means you can collaborate freely with other firms to share ideas with those who may have completely different approaches to asset management. I’m a contributor on Advisor Perspectives, and I benefit from discussions with thought leaders throughout the industry. This is not encouraged at most large firms due to compliance risks and competitive rivalries.
I have found that collaboration helps me to articulate my process better, and it helps expose blind spots in my approach. I collaborate with a private network of fellow advisers, with whom I recently discussed my capital market assumptions. It’s not only a great tool for me but for sharing with clients.
Autonomy means that I can speak candidly with clients about their portfolio. I can speak openly about what’s working, what’s not, and what I’m doing about it. This is rarely possible at large firms, which usually describe decisions in the best possible light. A candid approach, on the other hand, deepens the client relationship.
Speaking of which, autonomy also provides the freedom to call clients just to talk. I don’t have any products to sell, and my clients know it. They are already paying me a fee, so I’m just there to protect their interests. It is truly rewarding to be free from sales pressure.
Autonomy allows me to innovate in portfolio design, compensation structures, client service, communication, etc. It is much easier to innovate at a small firm since I’m not burdened by legacy issues. For example, I recently started offering financial planning on an hourly basis, with no minimum and no strings attached. This may be viable and it may not — time will tell.
I also like to do innovative research. I’ve been in the business for 30 years, and I love to do primary research. This takes time, and it cannot be constrained by corporate conformity and a fixation on career risk. I believe that career risk often hinders investment professionals from taking prudent risks. After all, they may fail and look bad.
As the owner of a small firm, I am free to go wherever the opportunities lie. In many respects, I am now doing better research than I did when I had senior positions at large firms. It’s not because I am smarter; it’s because I can collaborate and innovate.
Of all the benefits that autonomy confers, I believe accountability is the most important. Clients hold me directly accountable for the success or failure of their investments, since I take responsibility for the consequences of my decisions.
Unfortunately, as the industry embraces robo-advisers, I am struck by how automation can be used to dodge accountability. Likewise, advisers can use regulatory compliance to avoid responsibility for client suitability. All too often, the investment policy statement or the risk profile is used to pigeonhole the portfolio and to put the asset allocation on autopilot.
Quantitative methods can also be used as a smokescreen to avoid accountability. This happens when the investment process relies on blind extrapolation of historical statistics without considering financial theory and current market conditions.
There are other types of accountability. In addition to the coins above my desk, I also have a 100 rupee note, a souvenir from my last trip to India. My firm supports an orphanage in Andhra Pradesh, and the 100 rupee note reminds me to keep things in perspective.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Image credit: ©iStockphoto.com/Big_Ryan