Back then, many folks weren’t interested in working with young people on a fee-for-service basis and didn’t believe it could be worthwhile. But nearly a decade later and 1,700 advisors strong at XYPN, we know that expanding financial planning is not only viable and profitable, but it’s also the right thing to do and it’s what many of you are called to do.
I was impressed that today’s advisors are more dedicated to good financial planning than ever before. Yet, as I listened to various advisors musing about the financial planning industry or starting a firm, I was amazed—and disheartened—by some of the fear-based tactics and decade-old myths about the independent RIA space that broker-dealers (BDs) and large RIAs are using to coerce fidelity from their advisors and keep them from thinking about the possibilities that come with autonomy.
So when I floated the “What myths were you told?” question to our VIP Facebook Group and a few others, my suspicions were validated. There are some BIG misconceptions about what it takes to start and run an RIA that NEED debunking.
So, here it goes.
Myth #1: You need to be affiliated with a broker-dealer to be a financial planner
Reality: Independent RIAs are viable practice models for financial advisors who want to build their own practices.
When I explain the role of XYPN in helping advisors start, run and grow their RIAs, I’ve been asked honestly, “So XYPN is the BD?”—because advisors were unable to compute the idea of complete independence. For new advisors, BD or RIA affiliation is one way to get started, but not the only option—just ask any of XYPN’s 1700 members who’ve successfully been running their own firms on their terms.
So, to squash myth number one: starting and running an independent RIA may not be a fit for everyone, but it is a possibility, regardless of what BDs tell you.
Myth #2: Payouts are a necessary expense in the financial advisor equation
Reality: Just as you don’t need to be affiliated with a BD or an RIA to be an independent RIA owner, it follows that payouts do not need to be part of the mental equation as advisors price out their options for independence.
Each BD and RIA has a different compensation structure—and regardless of what it is—it’s not a necessary line item for independent RIAs. When doing the math of what it might take to transition a book of business to an independent RIA, we heard one advisor nonchalantly say, "Oh yeah, the BD cut is just 7% right off the top,” while others told us that it was upwards of 40%.
And that cut isn’t all. As you compare your revenue and overhead expenses versus payouts, be sure you’re calculating in all the payouts—including client commissions and management fees—because you aren’t the only one contributing to your firm’s bottom line.
Once you get an understanding of really HOW MUCH your revenue structure is eating into your bottom line, start dreaming big about how you would do it differently. Our First Year Budget Projection with sample budgets for $10k, $20k, and $30k and XYPN's Benchmarking Study can help you pencil out projected expenses and revenues so you can calculate what it takes to start and run your own RIA.
As financial planners, I shouldn't have to remind you that as you do your math, don’t forget that 7% - 40% only gets bigger as your book of business gets bigger and more profitable. As you imagine your dream firm, think about the capital you get to save as you scale if you were independent—what you can do with 7% on a $1mil revenue firm when you’re not giving it away to the BD to keep your business running?
I know from experience that advisors can reinvest in themselves, give their teams (and themselves) sabbaticals, and improve their client experience. Advisors call it flexibility and freedom, we like to call it living your best life!
So next time you hear this myth—that the BD cut is a necessary line item—we encourage you to ask yourself:
What am I sacrificing to benefit my BD or RIA instead of my clients and myself?
What would I do with the money I'm paying out if I didn't have to?
What’s the price of autonomy?
So let’s put pencil to paper and put this myth to bed. Scratch out payouts!
Myth #3: Red Tape is Par for the Course
We hear it over and over again: “There is SO MUCH red tape at my BD.” Red tape wrapped tightly around who you can work with, how you can work with them, how you can charge, and how you can promote yourself. Yikes!
Reality: Folks, repeat after me: Red tape is NOT necessary. In fact, the rules of RIA ownership are few and far between because with great independence comes great autonomy.
So, put on your imagination hat and ask yourself:
Who would I serve if it was up to me?
How would I serve them?
How would I charge them?
How would I promote myself, my services, and my value?
How would I be more efficient with the business?
Would I write my clients handwritten letters on their birthdays—because that’s the kind of person I am and I like having the freedom to be me?
We know from experience that advisors who come from the BD space often operate out of a scarcity mindset in terms of who they can work with and how. It’s so important to break free of that though because scarcity is isolating and we shouldn’t feel hesitant about connecting and being real with our clients, or being real when we market ourselves to prospects.
But the more restrictive your firm is, the more you think you need their permission, right? What they don’t want you to know is that you don’t need their permission to define your client relationships—which matter now more than ever—and if we feel like we can’t be real in our client relationships, we’re doing something wrong.
So, remember: freedom to be authentic is what keeps relationships healthy and valuable—and no amount of red tape should ever keep you from that.
Myth #4: You need $100 million AUM to start a firm
You don’t have to go far to hear BDs singing an eerily similar tune, as confirmed by more than one XYPN member:
“You would need at least $100 million for it to make sense.” —XYPN Member, Colin Zizzi, CFP®, AIF®, CEPA®, Zizzi Investments
“You need $100 million in assets before a custodian will look at you.”—Todd Pouliot, AIF, Gateway Financial
“You need 100 million…and no one will pay for financial advice.” —XYPN Member Jeff Grimes, CFP®, Parakaleo Planning
Reality: There is no one-size-fits-all requirement for independence, and though you do need enough money to pay for the costs of starting your firm, there's no magic “runway” number you need to hit—nor the amount of assets under management you need to have.
As a matter of fact, you don’t need to have any AUM to start a firm. XYPN member, Andie Clark, CFP®, AFC®, founder of The Table Financial Planning, has been advice-only for 5 years and currently generates $250k/year in revenue. Turns out clients do pay for financial advice.
Check out how Andie does it on XYPN Radio Episode #356: Niche What You Know and Grow Fee-only Revenue to $250k in 5 Years: A Conversation with Andie Clark
Or take XYPN Member, Leo Marte, CFP®, founder of Abundance Wealth, who left AUM on the table when he walked away from his prior firm:
“I didn't just want to bring somebody over because they could pay the bills. I wanted to create a book that helped me thrive personally and make me enjoy helping those people every single day. I didn't want to have A, B, or C clients. I want to have all A clients. And that's very hard to avoid when you are bringing a large amount of clients from a prior firm into a new context. Because in that process, you know, you're niching, you're changing your offer, you're tailoring your services, people fall off the wagon because they may not necessarily understand what that transition means until they're going through it. And it felt to me like the right thing to do was to start with a clean slate and build the business that I wanted.”
You can hear more about Leo’s transition from AUM to fee-only on XYPN Radio Episode #332.
Fun Fact: XYPN is a leader in helping the industry shift from its focus on AUM and asset minimums. In 2016, TD Ameritrade partnered with XYPN as a National Sponsor, waiving its asset minimums for XYPN members—deemphasizing the threshold that previously kept people out of investing with large institutions. We continue to work with other leaders in the industry to show that financial planning and investment work do not need to be tied to assets, and we're working toward creating a new paradigm for planning.
XYPN will be the first to advise that having a solid runway will make you more comfortable in the first few years, but we’ve seen over and over again that having the agency to decide what’s right for you is the first step toward success.
You can start with less and grow your business over time—or save up and start big. The beauty is the choice is yours. Don’t let anyone tell you otherwise.
Let’s officially debunk this myth: many advisors come to XYPN with little to no AUM. Having some runway before launching is helpful, but it’s also a personal decision, and it’s certainly not $100 million AUM.
Myth #5: Compliance is IMPOSSIBLE to do on your own
“I think the compliance lie is bigger than all of the other lies put together…compliance for a shop of one-to-a-handful of fiduciary advisors…is tedious, but it’s not the rocket science that BD compliance officers very badly want you to think it is.” —XYPN Member, Sean Gillespie, Redeployment Wealth
Reality: Just because you’ve been told “There be dragons” on that part of the map doesn’t mean there are. Compliance is an essential part of the setup and operation of your firm that can be managed with complete confidence. Not only that, it’s actually far more minimal work with an RIA than what those who come from the BD world are used to putting into it.
On XYPN Radio Espisode #350, XYPN Member Daniel Yerger, MBA, CFP®, ChFC, AIF, CDFA, of My Wealth Planners, notes, “Firms will always say, compliance is a huge bear. It's just going to be hard to maintain a compliant firm, and it's a lot of work and whatnot. But 90% of the compliance problems you deal with as a dual-registered person come from the brokerage side, not the RIA side.
I thought I was going to burn up a quarter of my week going forward on compliance tasks and operations. I got 30% of my time back after the transition because once you're working with a tech stack and a system and a process for compliance, all stuff that is by you, for you, it's way easier than working through systems built for someone else to monitor you as your way of doing business.”
In the past year alone, the XYPN Compliance team registered 186 new RIAs, bringing XYPN's total to more than 1,200 firms and 1,650 members. In the aggregate, this means XYPN represents nearly 11% of all state-registered RIAs offering financial planning services. Given our exposure to the regulatory space, we know that regulators are primarily interested in ensuring that you have a compliance program in place and that you’re not stealing from your clients.
Our team of former state regulators and compliance experts at XY Compliance Solutions bring this knowledge and expertise into each conversation to demystify compliance responsibilities and help our members feel empowered to manage them with complete confidence.
Their flexible and continuous support includes providing resources needed to fulfill compliance requirements from initial state or SEC registration to audits and ongoing ADV updates. Tools like SmartRIA, a task management system that tracks all your compliance to-dos, and XYPN Archive, our proprietary archiving solution that enables you to comply with books and records requirements for your email, social media, and website make it easier for you to develop and maintain a strong compliance program with minimal stress.
We also offer weekly Compliance Office Hours with members of our Compliance Team as well as the opportunity to ask questions of your peers on our community forum platform.
Consider myth five busted. Compliance, with the right resources, can be confidently managed on your own.
Myth #6: The financial planning space is too “cutthroat” to do it yourself
“I was misled about how "competition" works in the space. [I] was told that it was cutthroat, no one would be willing to help an advisor just starting, and building a client base and community relationships without being established would be impossible.”
—Melissa Walsh, CFA®, CFP®, AIF®, Clarity Financial Design.
Reality: There is a reason “Community” outranks other XYPN membership benefits 3-to-1. We witness the powerful impact our network of advisors have on each other through mentorship, support, and encouragement every day.
Owning any type of business can be challenging, but it’s a lot easier with hundreds of like-minded people in your corner whose shared experience acts like a lever, elevating everyone involved. That’s why we provide as many points of connection as possible through our member forums, mastermind groups, and community events as well as XYPN LIVE, XYPN Radio, and our VIP Group on Facebook—which are open to anyone who wants to attend, listen or join.
XYPN Member Maggie Beach, CPA, MBA, of New Vision CPA Group, shares about her guest appearance on XYPN Radio Episode #345:
“What I love about these conversations, (is that) people'll hear you. My mastermind group—they'll listen and get links to resources that work for them. So I just feel like we're all in the same boat and we're not competing with each other.”
Myth six, busted: you can go independent and not be alone. In Melissa’s words, “With XYPN, the community goes above and beyond to help others succeed.”
Myth #7: It takes five years to reach a point of profitability
“It will be five years before you're profitable.” —Melissa Baker Ellis, MS, CFP®, CDFA®, Sapphire Wealth Planning
Reality: As Melissa continues, “Wrong! Keep your expenses low until you build your client base, and you can be profitable in the first full year of business.”
XYPN has collected 9 years of data from our members that paints a more realistic picture of what it takes to start a firm and become profitable.
We know that our members’ average age has increased year after year, indicating that more advisors are waiting to start their firms. We know that nearly 70% are CFPs, and most come with 10 - 15 years of business experience. Our annual Benchmarking Study shows revenue levels that reach that of the BD world within 1-3 years for some advisors.
To get you there, we offer extensive courses and practice management support to help you grow every aspect of your business during every phase—from pre-launch to starting, running, and scaling your firm. We also have executive coaches with decades of expertise between them ready to help you work towards creating and growing a sustainable firm. Throughout it all, our Member Experience Team guides members through all that we have to offer to see that you meet your goals.
On XYPN Radio Episode #320: Impacting Over 100 Clients in Two Years, the owner of Be Intentional Financial, River Nice, shares how serving a niche that they are passionate about not only proved to be very fulfilling but also grew quickly within their first two years.
Pro Tip: Implement the technology, processes, and systems that help you be productive in the areas of your business that profit from it—not just run it.
The five-year profitability myth? Totally busted. Not only that, the infrastructure you build now will make it easier to scale in the future.
Truth: If you want to start and run a successful RIA practice, you can.
For every person who’s heard, “This is just how the industry works,” our community at XYPN is proof that there is a better way. If you’re interested in creating your firm on your terms, we’re here to show you that it’s not only possible, it’s profitable.
At XYPN, we know what it takes to start, run and grow your RIA. We also know that it is a deeply personal decision and has many moving pieces. That’s why we have taken so much time—and care—to develop all of the tried and true tools and resources you need to succeed.
Top takeaway: The most important thing is to believe in yourself, and the value you offer—not the outdated myths that broker-dealers use to scare you away from independence. If you can demonstrate how your firm can bring value to your prospective clients, then you stand a very good chance of starting an RIA practice that will succeed, and XYPN will be there with you every step of the way.
About Maddy Roche
Maddy Roche is the Vice President of Gettng Sh!t Done at XYPN, and has been making moves and getting sh!t done since she joined the team in May of 2014 when the Network was made up of our first 30 founding members. Since then, Maddy has worked with and welcomed each of the Network’s members, and helps all of them take advantage of XYPN membership and the resources offered.
Subscribe by email
You May Also Like
These Related Stories