What Is The Benefit Of Controlling Your Local Expenses As An RIA?

Описание: Being able to control your so-called “local expenses” as an RIA, or 1099 when joining an RIA, comes with additional responsibilities, but also significant benefits to match:

Only pay for the resources you actually use.
The ability to run as lean or extravagant of a practice as you wish.
Determine the composition of your team.
Benefit from controlling your local real estate footprint.

On this episode of the Transition To RIA question and answer series I expand on these benefits, and others, with respect to controlling your local expenses.

I'm Brad Wales with Transition To RIA (TransitionToRIA.com). This is episode #131 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 and teams between $50M and $1B 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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🔹 Transcription of video:

What is the benefit of controlling your local expenses as an RIA? That is today's question on the Transition To RIA question and answer series. It is episode #131.

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 what are the benefits of controlling your so-called local expenses as an RIA. I will define what that is and then go into what some of those benefits are.

But to be certain, this topic and the idea of controlling your local expenses pretty much applies to any sort of independent platform. So whether that's starting your own RIA or joining an RIA that's a 1099 model, or even an independent broker-dealer platform where again, you're 1099 or independent contractor. This applies in all those independent scenarios.
But obviously as this is the Transition To RIA episodes, we will be talking about it in that RIA context.

To define what we're talking about when we say local expenses, first let's think about the traditional W2 model. Whether that's a wirehouse firm or a regional broker-dealer firm, those types of firms, that model. I've done several episodes talking about payouts and economics and differences between a wirehouse model and the RIA model.

But the traditional W2 model generally has a payout, depending on your size, somewhere in the 30, 40, 50, up to maybe 50% range or so.
And as I always say, I've pointed out in other episodes, be careful because what they tell you is the payout, there's usually all kinds of things they back out of that or other fees or deferred comps. So that's generally not your true payout.

But for this episode, we'll assume for simplicity sake you’re getting 40%. You might be higher or lower than that, depends on your circumstances.
And with a payout of 40%, that means your firm is retaining 60%. I always encourage you to look at the inverse of your payout and say… how much is that in dollar terms per year? And then what value and services is my firm providing me for what I'm paying them that 60% for?

A lot of advisors think of it as I get to receive 40%. I say, no, you're the one generating the fees and commissions with your clients. Think of it as you essentially getting 100% of that, you then turn around and pay your firm the inverse of your payouts. In this example, that's 60% and in return they are providing you with things.

Now in their defense, in the W2 model, they do provide you with a lot of things. They typically provide you with an office. They pay for staff, they pay for technology, they might pay for other resources that they provide for you to use as part of their value proposition.

But near term and long term, are you getting enough value from what you're paying them? Is it good economics for you? Con't.....

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