Experienced RIA Advice Givers More Likely To Negotiate Equity Ownership Today

As independent advice giving firms seek to firm up their succession-planning efforts, experienced advisors who join forces with these companies should have broader ownership opportunities going forward.

"Pure" Registered Independent Advisors (RIAs), as well as dually registered advisors affiliated with broker dealers, are increasingly bringing in seasoned people and "test driving them" for a possible ownership fit, observes Scott Smith, associate director at Cerulli Associates in Boston.

You need five to 10 years of experience

"No one's hiring rookies these days," Smith told eFinancialCareers, observing that for the most part, advisors are being hired for slots with RIAs after five to 10 years of experience in the independent broker dealer, bank or insurance channel. While acknowledging that many advice-giving firms remain stymied about how to create formal succession plans, Smith says he definitively sees advisory firms trying new folks on for size where they have sufficient experience.

In fact, during the past two years, 15 percent of more than 600 advisory firms participating in the new Investment News/Moss Adams Adviser Compensation & Staffing Study eFinancialCareers reported on recently said they'd expanded ownership by an average of one new owner with the average tenure of that individual being 5.4 years at the firm.

A third of RIA firms offering equity ownership

Currently, just a third of the 616 firms surveyed-of which 79 percent were RIAs and 34 percent broker-dealer affiliated-are offering employees the opportunity to become owners. Nevertheless, the study concludes that owner compensation trends are "heading in the right direction," and suggests that while ownership expansion is happening slowly, it is gradually expanding beyond solo practitioners and founding owners.

Today, "We're usually looking at the first generation of entrepreneurs that started the advice industry from the ground up," observes Kelli Cruz, director of research and consulting at IN Adviser Solutions, an independent InvestmentNews property that offers research, benchmarking and consulting data to advisory firms.

That probably accounts for the trouble they've had making a smooth transition to the next generation of owners, Cruz tells eFinancialCareers. Nevertheless, she says, it probably doesn't hurt to touch on a firm's succession planning design during a job interview, particularly "If you're an experienced person bringing in a book of clients and assets."

Talk about your desire to become an owner of the firm

During the interview process, it makes sense to talk about your desire to become an owner of the firm in the future then revisit that plan at your one-year mark with the firm, assuming there's a fit, Cruz says.

Laurie Belew, a financial advisor at fee-only financial planning and investment management firm Fox, Joss & Yankee of Reston, Va., says that after she graduated from Texas Tech University in 2006 with a joint Master of Science Degree in personal Financial Planning and Master of Business Administration degree, each and every one of the firms she was pursuing for a position were addressing the ownership issue in some fashion.

"Fox Joss was ahead of the curve," she says, observing that she had spoken with one owner who was nearing retirement and considering hiring a single individual to succeed him in his practice.

The firm now has seven full-time employees, and "Everyone who is on an advisor career path should someday have the opportunity to purchase equity in the firm. "

The Investment News/Moss Adams Adviser Compensation & Staffing survey pointed to the following trends:

- Owner compensation has "returned to an upward trend" after suffering during the recession.

- Most ownership transactions represent purchases, but a sizable minority of them is also earned over time.

- The largest share of firms surveyed-34 percent-said employees are funding ownership with self-funded means-purchasing equity on their own. Next most popular are internal loans from the firm or individuals at the firm, utilized by employees at 22 percent of the firms surveyed.