The Reality of Running Your Own RIA — Freedom with Responsibility

The Great Wealth Management Migration And Why Advisors Are Leaving Broker-Dealers for RIAs Part 4 of 5 : The Reality of Running Your Own RIA — Freedom with Responsibility

Up to now, we’ve discussed the advantages of the RIA model – higher payouts, autonomy, fiduciary status, etc. – which explain why advisors are leaving broker-dealers. But it’s equally important to understand the challenges and responsibilities that come with starting and maintaining an RIA. The phrase often used is, “Going independent is liberating but also hard work.” In this part, we explore what actually happens when an advisor breaks away: the hurdles they must overcome, the new roles they must play, and the support structures they need to put in place. This will provide a balanced view – acknowledging that while independence can be great, it is not without its difficulties.

• Setting Up Compliance and Registration: One of the first tasks in starting an RIA is dealing with regulatory registration and compliance setup. At a wirehouse, advisors likely never had to register their own firm or draft compliance manuals – the company handled everything. When going independent, especially if launching a brand-new RIA, the advisor has to establish the firm as a legal entity (LLC or corporation), register with the SEC or state, and create a comprehensive compliance program. This involves preparing documents like Form ADV Part 2 (disclosure brochure), a Code of Ethics, written supervisory procedures, privacy policies, and more. Many breakaway advisors wisely hire a compliance consultant or law firm that specializes in RIA setups to do this heavy lifting. But even then, the advisor must invest the time to learn the new rules that apply to them as an RIA (for example, rules about custody of client assets, requirements for fee billing, the need to deliver ADV to clients, etc.). It’s a non-trivial process. A checklist from GeoWealth notes that a new RIA will need to register, obtain necessary insurance (E&O, etc.), and set up compliance policies before taking on clients. Ongoing compliance is also now the advisor’s responsibility. They (or someone they hire) will need to monitor adherence to the Investment Advisers Act, handle SEC audits (the SEC often examines new RIAs within the first year or two), and keep updated on rule changes (like the new Marketing Rule). In contrast, at a broker-dealer, the advisor had a whole compliance department shielding them from these concerns. Some breakaway advisors find this aspect daunting – instead of just following compliance rules, they now have to build and manage a compliance infrastructure. However, many do outsource ongoing compliance tasks or use software to help (several firms provide compliance support to RIAs as a service). Still, it’s a permanent addition to the advisor’s “to-do” list that wasn’t there before. In short: “You are your own compliance department now.” This is a common refrain to new RIA owners. It’s one reason some advisors join an existing RIA (so that firm’s compliance team handles it) rather than starting solo. [geowealth.com], [geowealth.com]
• Upfront Costs and Financial Risk: Launching an independent practice requires an investment of capital. At a wirehouse, one doesn’t worry about paying for the office lease, the computer systems, or the assistant’s salary – the firm does (though effectively the advisor “pays” via the revenue haircut). When going independent, an advisor must plan for costs such as: legal and consulting fees for the transition, entity formation fees, technology setup costs (buying computers, software subscriptions), marketing/rebranding expenses (website, signage, announcements), E&O insurance premiums, and possibly office furniture and lease deposits. In addition, there may be a dip in revenue when initially moving – typically there’s a gap of a month or two where clients are transferring and not all are billing immediately. Advisors often need to have several months of cash reserve to cover personal and business expenses during the transition period. Waterloo Capital notes that scaling a business requires massive investment in tech, compliance, and support – resources that can be hard to assemble without incurring significant costs up front. Many advisors take on this financial risk because the long-term reward (owning their practice outright and higher earnings) is attractive, but it can be stressful in the short term. For example, if an advisor was taking home $300k at a wirehouse, they might actually take home less in the first year as an independent after paying all startup costs – essentially investing in the business. On average, breakaways often say it takes a year or two to reach or exceed their old payout, once expenses and any client attrition are accounted for. One study (by 3XEquity) found that 100% of advisors who went independent said they would do it again and were happy with the decision, but that doesn’t mean it was easy. It requires entrepreneurial mindset: treating those costs as investments. Some costs are one-time (e.g., initial registration fees), others are ongoing (rent, salaries). Advisors must also budget for their own benefits (health insurance, retirement plan funding) which an employer might have subsidized. This financial planning aspect – essentially writing a business plan – is new for many advisors who may not have run a business before. Those who do it successfully often seek advice from consultants or peers who have done it. In summary, “starting an RIA is like starting a small business” – it comes with the need for capital and the willingness to forego some short-term income for long-term gain. [waterloocap.com][geowealth.com]
• Transition of Client Accounts: When an advisor decides to leave, they must navigate the transition of clients and assets, which can be a complex project. Under the Broker Protocol (if the advisor’s firm is a member), departing brokers can take basic client contact information and solicit clients to move with them. Even so, it requires contacting each client, explaining the move, and getting them to sign new account paperwork with the new RIA/custodian (or using electronic transfer systems where possible). This process is often described as “the ACAT shuffle”, referring to the Automated Customer Account Transfer system. It can be intense: advisors typically try to reach out to all clients within 24-48 hours of resigning from the broker-dealer, to get ahead of the firm’s efforts to retain those clients. It’s not uncommon for a breakaway advisor to work long days in the first week of independence, calling every client and walking them through forms. Some clients may have questions or concerns (“Why are you leaving? Is my money safe at the new firm?”). The advisor has to be prepared with clear, client-focused explanations (like emphasizing fiduciary duty, better service, lower costs, etc., without disparaging the old firm too much). The good news: as mentioned earlier, most advisors successfully transition the vast majority of their clients. A study by 3XEquity found most breakaways retained at least 85% of client assets during the move. That means the risk of losing clients is relatively low if the advisor has strong relationships – but it’s still a nerve-wracking time. Every client has to make an active choice to follow the advisor, which is different from the status quo at a wirehouse where the client might stick around by inertia. Advisors often say this period teaches them how loyal their clients really are. Nearly all who have done it will advise meticulous preparation: having a detailed transition plan, engaging a custodian’s transition team for help (custodians like Schwab or Fidelity have teams that assist breakaways with paperwork and logistics), and possibly preparing trusted clients mentally (some advisors carefully seed the idea that they might someday change firms, without violating any non-solicitation rules ahead of time). There’s also the matter of account repapering and possible downtime. Clients’ assets might transfer in kind, but some products can’t (e.g., proprietary funds might need to be liquidated). Advisors plan around tax implications of moving accounts. Essentially, the transition is a project that can take 3-6 months to fully settle – although most assets transfer in the first month or so, there are often straggling issues to resolve (like moving retirement accounts or handling trailing insurance business). This is a lot of operational work that the advisor and their new team must handle. During this time, revenue flow is lower (since until assets land and start billing, the RIA isn’t earning fees). That’s why that financial cushion is needed. Advisors who have gone through it often say preparation and good support are key – those who use an experienced transition consultant or the custodian’s tools find it manageable, whereas those who try to wing it can get overwhelmed. One success metric is that after a year, many breakaways not only retained clients but grew by attracting new clients impressed by their independence. Nonetheless, the initial transition is arguably the most challenging phase of the breakaway journey, requiring project management, communication, and patience. [advisorhub.com]
• Wearing Multiple Hats (Advisor and Business Owner): One of the biggest adjustments for a new RIA owner is realizing that they are now both advisors and business owners. At a large firm, the advisor could focus most of their time on client-facing work – the “business” aspects (HR, accounting, compliance, IT, etc.) were handled by the firm’s infrastructure. In an independent setting, even if the advisor hires some staff, they inherently take on multiple roles: they might be the Chief Executive Officer making strategic decisions, the Chief Operating Officer overseeing systems and vendors, and the Chief Marketing Officer promoting the firm – all while continuing to serve as a wealth manager to clients. This can lead to long hours and a need to develop new skills. For instance, an advisor might now need to evaluate and select technology vendors (CRM, financial planning software) – something they never did before. Or they may need to understand financial management of a firm (creating a budget, managing cash flow, setting compensation for any employees). Things like payroll, benefits for staff, office administration – mundane but important tasks – now fall on their plate (unless they outsource some components). Many breakaways report that in the first year, they spent less time on pure client work and more on business operations than expected. Over time, as they hire or streamline, they can refocus, but initially it’s a significant shift. Waterloo Capital’s guide points out that scaling alone requires massive investment in tech and operations, which can become a roadblock if an advisor tries to do it all themselves. It recommends recognizing where to get support – e.g., maybe outsource portfolio reporting or use a turnkey asset management platform to save time. Advisors also must become employers if they hire staff. That means things like hiring decisions, training, management, even firing if needed. Not all advisors are naturally comfortable in a managerial role – especially if they came from being a lone producer with a firm-provided assistant. There can be a learning curve in how to lead a team or how to build a culture for their new firm. On the flip side, many find this empowering: they get to shape the firm values and client experience exactly as they want. But it requires attention and effort that used to be directed elsewhere. In essence, running an advisory practice is now running a small business – with all the joys and pains that entails. This “multiple hats” phenomenon is why some advisors join existing RIAs: so they can focus on clients and leave the business administration to someone else (like the RIA’s management). Those who do start their own should be prepared that, as one breakaway put it, “I had to become an expert in things I never cared about before, from choosing health insurance plans to negotiating office copiers. It made me appreciate what my old firm provided, even as I prefer being independent now.” The good news is, once systems are in place and maybe an operations manager is hired, this burden can lighten. Many independent advisors get through the initial heavy-lifting phase and then find a new equilibrium where they can delegate more and return their focus to growth and clients. Nonetheless, the first year or two requires intense hustle – something any prospective breakaway should anticipate. [waterloocap.com]
• Maintaining Growth and Competing as an Independent: After the dust settles on a transition, an independent advisor faces the ongoing challenge of growing and sustaining the business in a competitive market. Without a big brand name behind them, they must differentiate their firm and attract clients on their own merits. Many breakaways actually see accelerated growth once independent (due to better marketing and referrals from clients pleased with the change), but this is not automatic. Advisors need to invest in marketing strategies – which could include digital marketing, client events, leveraging their ability to use testimonials, etc. Some find marketing daunting since the mothership used to handle advertising. However, as noted, RIAs have new tools post-2022: they can use social proof (client reviews, etc.) which can boost growth. Advisors also often cite that they get more referrals after going independent because clients perceive them as more objective and boutique. Still, running an RIA means every aspect of growth – from lead generation to converting prospects – is under the advisor’s purview. There’s no national brand feeding them prospects (wirehouses do sometimes refer bank clients or have branch walk-ins – small source, but something). So business development becomes a top-of-mind activity. Many independent advisors join networks or study groups to share ideas on growth. Additionally, scaling the business beyond a certain point might require hiring more advisors or staff, which loops back to wearing that CEO hat to figure out expansion. There’s also competition from other RIAs and larger firms. Clients have abundant choices, so the independent advisor must articulate clearly what makes their service special (often it’s the personalized, fiduciary approach and possibly lower fees). Some breakaways align with larger RIA platforms specifically to gain scale advantages (like better tech pricing, or being part of a larger brand for marketing). For example, a supported RIA platform might give them a slick client portal and mobile app that a small RIA alone might not afford – which can enhance competitiveness. Another aspect of sustainment is compliance and risk management ongoing: the advisor must ensure no compliance lapse (which could hurt reputation or cause regulatory trouble). It’s an area where “you don’t know what you don’t know” – hence many invest in third-party compliance audits or tools to stay on track. The cost of an error (e.g., a custody rule mistake or a client complaint not handled properly) can be high when you’re on your own (no large legal department to cushion it). So maintaining a strong compliance culture in the new firm is part of keeping the business healthy. Overall, after the initial transition, the challenge is building an enterprise that can thrive long-term – which means thinking beyond just day-to-day advising and really planning strategically (should we add a partner? Acquire a retiring advisor’s practice? Invest in new technology for efficiency? etc.). Many independent advisors find this exciting – they can chart their own destiny – but it is certainly more complex than being “just an advisor” at a wirehouse.
• Psychological Adjustments: It’s worth noting the less tangible, human side of this career change. Leaving the broker-dealer means leaving behind a large firm support network and identity. Some advisors feel a sense of relief and pride being independent; others may experience moments of uncertainty or even isolation. Where they used to have colleagues down the hall to discuss ideas or a branch manager to consult, now they might be solo or with a very small team. Many breakaways combat this by connecting with other independent advisors (through local FPA chapters, custodian conferences, or just industry friends). Mentorship and community can be found even outside the wirehouse setting, but it often requires the advisor to be proactive. There can also be an emotional learning curve in truly viewing oneself as a business owner. For instance, making decisions like how much to reinvest in the business vs. take as profit – these were non-issues as an employee (where decisions were made above, and paycheck steady), but now it’s personal. Some advisors get a new lease on life from this – they love steering the ship. Others find it adds stress. Mental resilience is important, especially in the early phase when hiccups are inevitable (like a client taking longer to convince, or an unexpected tech issue, or an expense that was larger than budgeted). The advisors who thrive are typically those who embrace being entrepreneurs and are adaptable problem-solvers. In many interviews, breakaway advisors say things like, “It was challenging, especially the first year, but also the most rewarding thing I’ve done professionally.” They often mention that after overcoming the initial challenges, they wouldn’t ever go back because the sense of ownership and freedom is so satisfying. Another psychological shift: at a wirehouse, if something goes wrong (say a trade error or a client complaint), the firm bears a lot of responsibility and has protocols. As an RIA, the buck stops with the advisor. That can be scary – but also can motivate advisors to be even more diligent and client-focused, knowing everything rests on their shoulders.

In summary, the reality of running an RIA is a mix of empowerment and new burdens. Advisors gain the ability to tailor everything to their liking, but they must also execute on everything. Key challenges include: managing compliance personally, bearing all costs (office, tech, insurance), transitioning clients without a hitch, handling countless operational details, and balancing client work with business management. It’s often said that independence “isn’t for everyone” – it favors those with an entrepreneurial spirit or at least a willingness to hire help for the parts they lack. Not every broker-dealer advisor wants to worry about business leases and compliance filings; those individuals may actually prefer to stay in an employee model. Conversely, those who make the leap typically either are ready to do the extra work or join a platform that eases that work.

To put it in perspective: going independent is like moving from being a tenant to owning your home. As a tenant, the landlord fixes the leaky faucet (but you live by their rules); as a homeowner, you fix the faucet yourself (but you can renovate whatever you like and you build equity). Many advisors find that once they adjust, the “ownership” mentality makes them better business people and even better advisors. They feel more invested in their clients’ success because the business’s success is directly tied to client satisfaction. Still, the initial transition phase can be all-consuming and the ongoing responsibilities are not trivial. We often hear, “Starting an RIA is easy; maintaining and growing it is the hard part.” That is very true. The good news is that dozens of service providers now exist to help independent advisors with virtually every aspect of the business (from compliance consultants to outsourced CFO services), so breakaways can assemble their own support network. It’s a far cry from 20 years ago when going independent meant truly doing everything alone.

Ultimately, understanding these challenges does not negate the appeal of independence – rather, it prepares advisors (and their clients) for a smoother journey. Those who anticipate the hurdles (and plan how to overcome them) tend to transition successfully. As the earlier parts have shown, the industry trends suggest many find the effort worthwhile: surveys of breakaway advisors show overwhelming satisfaction and very few, if any, regrets. But they’ll also candidly say it was a lot of work at the start. In Part 5, we will discuss an emerging solution to these challenges: advisors joining established RIA firms or platforms so they can enjoy independence with built-in infrastructure – a path that can mitigate many of the difficulties outlined here. [geowealth.com]

References:

AdvisorHub. (2022, March 25). A Year in Transition. (Study cited: 3XEquity finding most breakaway advisors transferred >85% of assets to new firm). Retrieved from https://www.advisorhub.com/resources/a-year-in-transition/ [advisorhub.com]

• GeoWealth. (2023, August). Your Complete Breakaway Checklist: A Guide to Starting Your Own RIA. Retrieved from https://geowealth.com/complete-breakaway-checklist (details tasks like SEC registration, setting up compliance, etc.) [geowealth.com], [geowealth.com]
• Waterloo Capital. (2025, November 26). What to Know Before Joining an Established RIA. Waterloo Capital Newsroom. Retrieved from https://waterloocap.com/joining-established-ria-guide/ [waterloocap.com]
• 3XEquity. (2025, August 6). The $2.5 Trillion Dollar Elephant In The Room. 3xEquity Editorial (cites Cerulli and breakaway advisor sentiment – “100% would do it again”). Retrieved from https://3xequity.com (via GeoWealth) [geowealth.com]
• SmartAsset (Patrick Villanova, CEPF®). (2025). What Are Breakaway Advisors? (Notes that while independence offers higher income and flexibility, advisors must handle infrastructure and compliance, and consider support). Retrieved from SmartAsset.com.
• InvestmentNews (Diana Britton). (2022, February 24). Why Going Independent Isn’t for Everyone. InvestmentNews. (Discusses personality and resource considerations for breakaways, and common challenges new RIAs face.)