How Much Cash Should I Have Saved Before Transitioning My Practice To The RIA Model?

I'm Brad Wales with Transition To RIA (TransitionToRIA.com). This is episode #92 of my question and answer series where I answer RIA related questions I get from advisors just like you.

You've done your due diligence on the RIA model.

You've determined which path into the model to use.

You've mapped out the transition steps.

But how much is it going to cost to make the transition?

There are hard costs, as well as your own peace of mind, that must be considered.

In this episode I explain what those costs are and how to plan for them.

What I do: At Transition To RIA I help financial advisors understand everything there is to know about WHY and HOW to transition their practice to the Registered Investment Advisor (RIA) model.

RESOURCES & LINKS
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🔹 Website: https://TransitionToRIA.com/
🔹 Show notes: https://TransitionToRIA.com/how-much-...
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🔹 List of all questions I've answered: https://transitiontoria.com/videos/
🔹 Podcast: https://transitiontoria.com/podcast/
🔹 Whitepaper ("11 Ways The Economics Of The RIA Model Are Superior To Other Advisor Affiliation Options"): https://transitiontoria.com/whitepapers/

🔹 Transcription of video:

How much cash should I have saved before transitioning my practice to the RIA model? That is today's question on the Transition To RIA question and answer series. It is episode #92.

Hi, I am Brad Wales with Transition To RIA where I hope you understand everything there is to know about why and how to transition to the RIA model.

If you're not already there, head to TransitionToRIA.com where you’ll find all the resources I make available. This entire series in video format, podcast format. I have articles. I have whitepapers. All kinds of things to help you better understand the RIA model.

Again, TransitionToRIA.com.

As I said at the top, what we are going to talk about on this episode is if you've concluded - and again, there's a whole process leading up to before you would make this conclusion - that moving into the RIA model is a fit for you.

You've determined which pathway into the model is best for you, you've determined the solution providers you need, etc. That is exactly what I help advisors with, each of those steps.

Let's say you've done all that, and you plan to transition to the RIA model. The transition itself is very important because it doesn't matter how much planning you've done, it doesn't matter what your future model will be, if you can't successfully transition your clients, it’s not going to work out well. So, the transition is very important.

Now, part of that is your comfort as an advisor going through the transition. Part of that comfort is going to be, "Do I have enough cash or liquidity saved up to cover all the costs and to get me through the transition to the point where my clients will be moved and revenue coming in?" That's what we're going to talk about on today's episode.

Part of the capital is to cover hard costs that are involved, for the transition period, but part is simply how much capital do you want in reserve to give you peace of mind?

I'm going to go through some of the variables involved, and estimates for each. But as each advisor situation is unique, your individual needs will vary.

To start with, what do you need cash for upfront? Essentially “day one” as you begin the transition.

First, for some of you, you might owe your current firm back some sort of forgivable note from when you originally joined them. It's money you received upfront with the expectation that you would stay a certain period of time. If you don't see through that entire runway, you generally owe back a prorated portion or essentially whatever the remaining balance is on the forgivable loan. They will want that money back.

They typically want it back relatively quickly. You will need to understand what that dollar amount is, what that expectation is going to be, and then have that cash available.

This won’t apply to some of you. Maybe you never received an upfront bonus, or you did, and it’s ran its course. But if you have an outstanding balance, you will need that cash ready to go.

They will want it quickly, and by quickly, it's not like they expect it within 24 hours. They probably will rather quickly send you some sort of demand letter for it, but it generally needs to be paid within the first couple of weeks after you have made the move.

So, that's bucket number one.

The next “day one” cost is what it takes to get the RIA up and going. Con't....

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