A former broker on the costs of running a new RIA

In the “practice management for financial planners” class I teach at Texas A&M University, I recently asked how many students were thinking of starting an independent advisory firm after graduation.  

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Not a single hand went up. 

When questioned, each of the CFP-exam-ready students said they’d rather work under someone else before going out on their own. 

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I could relate. I spent 15 years working for big broker-dealers before becoming a certified financial planner and launching my own RIA in June. Seven months in, I’ve realized that many of the fears that held me back were unfounded — and that lesson applies just as much to veteran advisors as it does to students.

Don’t feel ready? Go independent anyway

Readiness is a myth. Whether you’re fresh out of school or 10 years into the business, starting an independent RIA still requires a leap and confidence only comes after action. 

When I worked at a major broker-dealer I was conditioned to believe that going independent was risky, expensive and practically impossible without institutional support. I was also anxious that I’d lose the plush office, the tech stack, the referrals, the performance-tracking dashboards and, most of all, the prestige.

But here’s what the big firms don’t tell you: Replicating all those elements isn’t as out-of-reach or costly as they make them seem. When I talked to independent advisors I saw they were running lean, profitable businesses. Pricing things out for myself, I realized setting up shop wasn’t prohibitively expensive. 

Granted, upfront costs like branding and logo design, website creation, legal entity setup, E&O insurance and initial tech stack decisions feel significant when you’re used to having all of that bundled into a corporate structure. When I left my BD, I walked away from deferred comp and platform perks. That stung. And ACATs don’t pay immediately. I had to float expenses for a couple of months before revenue came back in. 

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BD vs. RIA take-home

But once things stabilized, I found my take-home pay was higher. Back in my broker-dealer days, I believed that the referrals, the office, the brand and the tech stack justified giving up two-thirds of my revenue. It used to feel like a badge of honor … until I did the math. 

When I shared the numbers with my students recently, their jaws dropped. At my prior firm, I generated around $62,000 per month in gross revenue, almost entirely from fee-based business. But under the grid system, I was getting paid only 35% of that, which means I was earning about $21,700 a month for the exact same work I’m doing now — minus the flexibility, equity and control. 

I wasn’t building my brand. I couldn’t choose my tools. I had to justify every move. The firm kept the rest, and when I left, the book stayed with them. Now, my core operating expenses are about $3,000 per month. Even so, the difference in take-home pay is staggering. Today, as an independent advisor, I’m paid 93% of every dollar I bring in.

READ MORE: When should a financial advisor launch an RIA?

DIY and delegate at work and at home

But make no mistake: Going independent is expensive on many levels, especially at the start. I wanted the freedom to do things my way, and I got it. What I didn’t realize was how many new decisions that freedom would bring. Custodians, compliance, tech stacks, branding, office space — suddenly, every single choice was mine.

I advise anyone starting their own advisory firm to be scrappy. DIY when you can. You don’t need a 2,000 square foot office and a full staff. A Regus suite or shared space works just fine, especially now that Zoom is a standard part of doing business. 

I currently affiliate with LPL Financial as my broker-dealer, operating under a hybrid RIA model. However, I’m not an employee, which is a key distinction from the other major broker-dealer models I evaluated. Most would have required me to become a W-2 employee with little to no autonomy and no ownership of my book. That wasn’t a model I was willing to return to.

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Currently I have a part-time virtual assistant who handles non-client-facing tasks like graphic design, holiday cards and marketing support. I also lean on a “brain group” of trusted advisors, and we trade ideas and resources regularly.

Next semester at Texas A&M I’ll have a teaching assistant to help grade papers and field student emails. Several of my students have expressed interest in interning at my firm precisely because we’re in the building phase. It’s a unique window into what growth actually looks like. 

On the home front, I have a housekeeper and a yard crew once a week, a wonderful mother-in-law who cares for my toddler and a husband who’s been showing up in new ways so I can attend networking events and client meetings. 

That said, I haven’t handed off many core functions yet. I’m slowly learning to delegate responsibilities, and each time I gain more time to focus on what really matters: my clients, my family and growing my business the right way.

‘Different flavors of someone else’s pie’

When I began exploring independence, I looked at major broker-dealers, large RIAs and small shops. They all felt the same to me — just different flavors of someone else’s pie. Even the best offers came with golden handcuffs: big checks upfront but clawbacks, restrictions and no guarantee on the back end. 

For me, going independent wasn’t about escaping hardship. I could’ve kept earning and plugged into someone else’s structure. But I didn’t want to keep building someone else’s brand. I wanted to build my own.

Seven months in, I’ve found starting an RIA to be less expensive yet far more valuable than I had expected. My advice: If you’re waiting for the perfect time, don’t. Build it. They will come.  Even at this early stage of my career transition I look back and think: “I should’ve done this years ago.”