Are The Economics Better In The RIA Model?

You’ve likely heard it before, the economics are better in the RIA model.

But why is that?

To name a few:

- Higher top line revenue
- Ability to control expenses
- Operating leverage
- Tax advantages
- Flexibility to grow your practice faster
- Higher enterprise value

It’s important to understand how these variables compare to your current affiliation model.

In this episode of the Transition To RIA question & answer series I explain why the economics of your practice would be better in the RIA model.

Come take a look!

I'm Brad Wales with Transition To RIA (TransitionToRIA.com). This is episode #107 of my question and answer series where I answer RIA related questions I get from advisors just like you.

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.

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🔹 Website: https://TransitionToRIA.com/
🔹 Show notes: https://TransitionToRIA.com/are-the-e...
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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:

Are the economics better in the RIA model? That is today's question on the Transition To RIA question and answer series. It is question #107.

Hi, I’m Brad Wales with Transition To RIA where I help you understand everything there is to know about why and how to transition your practice to the RIA model.

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

Again TransitionToRIA.com.

On today's episode, we're going to talk about why the economics are better in the RIA model.

The precursor to where economics comes into the equation is there are two main reasons, two main motivations for why advisors transition their practice to the RIA model.

No matter how it's articulated, how it's described, it typically falls into one of two buckets. First, increased flexibility with how they can run their practice and the services and investment solutions they can provide their clients. And second, better economics.

On today's episode, we're going to talk about what exactly goes into making the economics better in the RIA model. I'm going to go through a couple items. As always, it's not an exhaustive list, but these are things that will start to help you understand why you hear in the marketplace, why you hear me talking on episodes, about the better economics.

The first advantage applies to if you start your own RIA. It's a little different if you join an RIA, but it can still be just as advantageous.
As an RIA you get a 100% payout.

I used that terminology, that framing, because that's something I hear advisors often refer to it as, a 100% payout. The reality is, if you have your own RIA, there's no payout at all. That term technically doesn't even apply.
The reason it's often expressed as a 100% payout is because that's the easiest way to compare to the payouts that other affiliation models offer.

But the reality is, it’s not a payout. The custodian that holds your assets is not giving you some sort of payout. When they process your client fees for you, all they are doing is remitting them out of the client's accounts, per your instructions, and sending the funds in aggregate to you as the RIA at 100%. They are not taking a payout on that along the way. That is not recorded as revenue for the custodian.

Point being, don't think of it as a payout. 100% of the client fees that you generate in your practice with your clients, that comes to you. Now, as we'll get into, obviously you have expenses to cover, but to be clear, that top line comes to you at 100%.

Next, and related to that, one of the big benefits of the RIA model, and this applies whether to you start your own RIA or you join an RIA that has a 1099 model, is the ability for you to manage and control your so-called “local expenses.”

That are things like an office, staff, paying for compliance, paying for technology, etc. Because you control that, you decide how extravagant you want to spend on something or not. Con't.....

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