Stronger Together: Join an existing RIA firm

In the second episode of our podcast, learn what financial advisors can gain by partnering with others who have already cleared a path to independence.

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Two teams of advisors meet to plan their new RIA firm.

Hear Joe's story

Joe Zappia wasn't sure he wanted to strike out on his own. So, he didn't. He joined an existing independent RIA firm instead—and he's never looked back.

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Joe Zappia: It was slowly then suddenly. There were many actions along the way that I viewed as annoyances, sort of like mosquitoes or flies buzzing around your head. But, suddenly a handful of things started to happen within the organization… I no longer felt that I could do what was best for the client without a lot of distractions or friction or conflict.
 
Jerry Cobb: For over 26 years, Joe Zappia was an advisor at an investment firm in New York, and he never dreamed of working anywhere else.
 
Joe Zappia: I was always really super happy with the way I was treated by this firm, and I thought I would spend my whole career there.
 
Jerry Cobb: But after that firm merged with a larger investment bank, things started to change, and Joe began to evaluate his career options.
 
He realized he wanted to go independent, but he wasn't sure if he had the desire to start his own business from the ground up.
 
Eventually Joe joined an existing independent RIA firm, which he found personally and professionally enriching.
 
Welcome back to your insider's guide to becoming an independent Registered Investment Advisor, or RIA.
 
I'm Jerry Cobb, Senior Business Consultant at Charles Schwab, and this is How I Became an Independent RIA, an original podcast from Schwab Advisor Services.™
 
Speaker 1: You get to the point where you're like, "You know what, the risk I can take to leave and be independent is absolutely worth it."
 
Speaker 2: I felt apprehensiveness, nervousness, but yet excitement.
 
Speaker 3: You know that you can see the light at the end of the tunnel.
 
Speaker 1: Really everything we wanted was possible.
 
Speaker 2: Even when it's hard or more than you thought, you still got to do it.
 
Speaker 2: Everything that stopped me from taking that next step was just fear and that fear was in the way of me actually being fulfilled.
 
Speaker 1: Complete freedom and happiness has been the result.
 
Jerry Cobb: Not all advisors who choose to go independent have an interest in starting their own business.
 
Some find that joining an existing independent RIA firm can offer them the flexibility that they want in order to best serve their clients.
 
In today's episode, we'll explore what an alternative path to independence looks like: when an advisor chooses to join an independent RIA firm as opposed to starting one themselves.
 
We'll look at what's to be gained professionally by such a move.
 
And then we'll check with an expert about what advisors should look for when choosing an independent RIA firm and how this kind of match-making works.
 
And as always, we'll get a little practical advice, and bust a few myths about the RIA journey.
 
So you can learn from others as you consider your own path forward.
 
But let's start with Joe and what motivated him to think about leaving a job that he had loved for 26 years.
 
Jerry Cobb: Joe began his career in finance straight out of college in the 1980s.
 
He joined an investment firm in New York, and over the course of 26 years built a team of advisors who he worked with to manage other branches of the firm around the state.
 
Joe Zappia: During that time I had great success with this firm. This firm was run by family. No proprietary product, no incentives to sell certain vehicles one over the other. But really always putting the client first.
 
Jerry Cobb: But then, the firm was sold to a very large investment bank. For the first time in the company's history, it was no longer led by family members, and things started to change.
 
Joe Zappia: Over the course of several years, we had gone from being a firm that really put the client first to all of a sudden being a firm that was run like big bank. And so the culture immediately changed, the incentives changed.
 
Jerry Cobb: At first Joe thought that he could work around some of these changes.
 
Joe Zappia: We were able to do the blocking and tackling, and sort of protect our clients from the bank, and some of their initiatives. But for the first time in my career, it was like, you had little crickets chirping in your ear about, "Maybe you should talk to a client about a secured line of credit, or maybe you should begin talking to them about opening up banking accounts... As things progressed it began to become a little bit more obvious that in fact there were incentives being created for us to use more bank products. And it may or may not have always been in the client's best interest.
 
Jerry Cobb: Joe grew uncomfortable.
 
He started to examine his own thought process to ensure that he wasn't letting the firm influence the way he was advising clients or structuring financial portfolios.
 
Joe Zappia: You're an employee of a firm that's doing something that clearly benefits them and not the client, and you're somewhat conflicted because you're an employee of this firm, but at the same time, you're really hired by the client, so you know, you have that difficult conversation.
 
Jerry Cobb: More and more changes started to take place at the firm.
 
Then something happened that made Joe realize that he had to think long and hard about whose interests he really wanted to serve.
 
Joe Zappia: One day I was in, and I'll never forget this, I was in our break room and I had made myself a cup of coffee and there was a big banner on the wall, there was a golf tournament in fact, one of the major golf tournaments coming to our city, there was a big poster board on the wall that talked about whoever leads the complex in lending you'll receive four passes to invite clients to the event. So I read that and I was a little bit annoyed.
 
So I called my local manager and I said, "Explain to me what you're doing here with this contest as it relates to this golf tournament. Because in my mind I just want to pick or contact our best clients, our most loyal clients, and I just want to say thank you and invite them to the golf tournament. And I don't think it makes sense that I need to sell a certain number of loans or lines of credit or mortgages in order to get these tickets. I think you should be giving me tickets because I'm one of the larger producers and I want to invite clients."
 
And the manager basically said, "Sorry this is the program and if you like the tickets, you need to sell some lending products." So I promptly said, "That's fine. I'll buy my own tickets and I'll take my own clients." So that was one of the instances where I said to myself, what the heck is going on here? You know, clearly, their compensation is tied heavily to how many bank products we use, or else they wouldn't be putting up incentives like this. And again, misaligned incentives create bad behavior. We've seen it in financial services for decades and decades.
 
Jerry Cobb: After that incident, Joe started to do research to try and find a firm that was similar to the one where he'd worked before the merger.
 
A firm where the client came first, the advisor second, and everyone else was in place to help the advisor help the client.
 
He knew he didn't want to reinvent the wheel.
 
He needed to meet with someone who'd done it all before and who could advise him.
 
That's when he started talking to Lori.
 
Lori Van Dusen: I'm Lori van Dusen, founder and CEO of LVW Advisors.
 
Jerry Cobb: Lori is an example of an advisor who knew she needed to go independent by building her own firm.
 
Not only did she have experience starting organizations from the ground up, Lori was committed to a strong set of values that she wanted to implement in her own business.
 
Lori Van Dusen: I'm the strategist, but I like to put pieces together so that we can really solve the whole problem.
 
I fought a lot of kind of battles in the wirehouse bank brokerage industry around objectivity and was kind of known for starting organizations around educating advisors on best practices. And giving public talks around the country.
 
Jerry Cobb: Lori and Joe ran in the same professional circles. And although they'd seen each other at various awards conferences, research functions, and social events, they never really talked business, until now.
 
Joe Zappia: I knew that she had gone independent. I reached out to her and I said that I'd like to sit down and talk with her about why she did it, how she did it, what she would do differently if she were to do it today, and I was basically picking her brain as a way for me to figure out the best way for me to take my team independent and create a better place for my clients.
 
Lori Van Dusen: And I said to him, "Listen, I've been through a long journey to put this firm together and I never, ever want you to think that you didn't know what you needed to know to make the best decision. So, I'm going to be completely transparent with you."
 
Jerry Cobb: Over the next year, Joe and Lori met regularly as Joe thought about his professional future.
 
And then something happened that changed things for both of them.
 
Lori Van Dusen: We realized that my skill set, my strategic skill set, my business development skill set, and my investment experience, and his different complementary investment experience, his compliance skills, his operational background at a super high level, were very, very synergistic.
 
Joe Zappia: We said…Why don't we do this together? Why don't you come on and be my partner?
 
Lori Van Dusen: "Let's just combine this, you join me."
 
Joe Zappia: We can create some great synergies and create a firm that maybe we can really make a difference for all of our clients and grow from there.
 
Jerry Cobb: On top of having a complementary skill set, Lori and Joe both felt they shared values that would be essential to running a business together.
 
They both went independent for the same reasons.
 
Lori Van Dusen: From day one I really didn't understand the industry in terms of how they approached the client. There was a lot of selling of products and upside down investments and silos… And, at a certain stage I just said, "I need to take this to the next level." And, I know it's independence because I know in an independent platform I can bring together the things that I really need to serve the client well, but to solve the whole problem. And, I think he was at the same place.
 
Jerry Cobb: Joe now knew exactly what he wanted to do. He'd partner with Lori and bring his five-person team to work with her at her firm, LVW Advisors.
 
Joe Zappia: I have little doubt that we could have started our own firm and been successful, but I thought there were huge benefits and synergies that could be created by partnering with somebody that really was as successful as Lori had been really for two and a half decades. But also the impressive team that she had put around her.
 
Jerry Cobb: The decision came naturally to Joe. He didn't lose any sleep over it. It felt like the right move.
 
Joe Zappia: So when I made the decision to go independent, I really didn't have much in the way of concern. For me the decision was so obvious I knew I wasn't making the decision because somebody was offering to pay me a large check. I knew I wasn't making the decision because I was running from something. I made the decision purely because I was absolutely convinced it was what was best for the client. So as a result, I really didn't have any fear because I was so certain and so convicted in what we were doing that I had no doubt about how successful I would be transitioning.
 
Jerry Cobb: LVW Advisors already had a research department, reporting and compliance, and all the infrastructure typical of an independent RIA firm.
 
But the office had to be renovated to make room for Joe's team. And Joe needed to decide on a custodian to work with, a reporting system, and any software that needed to be enhanced within LVW.
 
It took Joe and his team a little over four months to complete the necessary paperwork to make the transition happen. Joe felt so at peace with his decision that when resignation day rolled around, he saw it as unremarkable.
 
Joe Zappia: So the day, the actual day, May 9th of 2014, when we actually all resigned, it was a very, very uneventful day. And I walked into my then manager's office at 8:00 AM on a Thursday morning and handed him five resignation letters, mine included, and shook his hand, and walked out the door.
 
Jerry Cobb: The team was shortly at work at Lori's firm, putting together packages to send out to clients and making phone calls.
 
Joe Zappia: It was really a pretty incredibly powerful feeling to tell clients your story, tell them what just happened, why you did what you did, and why it's better for them, and then to have them reaffirm their trust in us, was you know, was really powerful.
 
Jerry Cobb: Joe found himself surprised at some of his client's reactions.
 
Joe Zappia: Several clients actually said, "Surprised it took you this long," or, "I never really liked that bank anyway," or, "Was wondering how long you were going to put up with it," and we actually, again, felt pretty good about that. That was one of the surprises, and with that came referrals.
 
Jerry Cobb: Within 60 days of his transition, Joe had retained 93 percent of his clients.
 
And once again, he was part of a workplace culture he was proud of.
 
Joe Zappia: The culture of this firm is: The client is always first, and do what's best for the client, and if we don't have the resources in-house, then find partners outside that we can bring in to help provide the solution for the client.
 
Lori Van Dusen: Being independent is so fantastic because you can build these pieces on that the client needs and solve the whole problem. And, let's always kind of skate to where the puck is going. I don't want to be in a position where, you know, four years from now I'm looking back and saying, "Wow, we should have built that" or "We should have been doing this," or "We should have been thinking that client's needs would evolve to this." And, I think that's what makes us really unique.
 
Lenny Chang: The nature of the independent movement is all about doing what is in the best interest of the client. And certainly the story of Joe and Lori coming together started with that notion. So there needs to be a real strategic rationale.
 
Jerry Cobb: Lenny Chang is Co-Founder of Focus Financial Partners, which helps independent firms problem solve and strengthen their businesses.
 
Lenny Chang: It's about what is in the best interest of the client and joining forces with someone, it is how am I going to work well? Am I going to work well with this person? Cultural compatibility is absolutely the number one criteria in determining whether or not coming together with someone else is actually going to be better for my client. And clearly Joe and Lori spent a lot of time thinking through the fit.
 
Jerry Cobb: But figuring out whether there's true cultural compatibility and real alignment around company culture, can be tough.
 
Lenny Chang: There's no shortcut to this. There's no silver bullet…. I likened it to the airport test, right? Could you spend 24 hours with this person stuck in an airport? And really getting at that. That's critical and there's no antidote to spending a lot of time before pulling the trigger on some type of combination.
 
Jerry Cobb: Joe and Lori had many discussions about not just their similarities, but also their differences. And Lenny says understanding how your potential partner is different from you can be a critical component of forging a successful partnership.
 
Lenny Chang: For example, maybe one part of the party is very strong on alternative investments and not really a core expertise for the other right party. But the other party has a lot of tax or estate planning expertise, which may be not the strength of the other firm. Right? That would be a pretty powerful combination and a reason to celebrate the differences.
 
Jerry Cobb: But other differences should be deal breakers.
 
Lenny Chang: If there are key fundamental differences in outlook to life, to business philosophy, life's short. Probably not such a great idea to kind of carry on in those conversations.
 
Jerry Cobb: For an advisor like Joe who was looking for a better way to manage his clients, there are so many more options available today than in the past. Independent advisors may choose to outsource some functions, like compliance or operations, whereas others embrace all aspects of running a business.
 
Lenny Chang: There are a lot of folks who are now a lot more aware of their choices, right? It's changed dramatically over the 10, 20 years.
 
Jerry Cobb: Technology is a great example. Lenny says the technology and infrastructure available to an independent is different from what's available inside a wirehouse.
 
Lenny Chang: In a wirehouse environment, to move that ship and really make any sweeping changes, it's a Herculean effort, right, and multiple, multiple years. Whereas the nimbleness of the independent space is such that there's so many choices and the technology is there now to support that.
Jerry Cobb: Lenny Chang is Co-Founder of Focus Financial Partners, in San Francisco, California.
It's been years since Joe joined LVW Advisors, and I wanted to check in to ask about how things were going.
 
Jerry Cobb: Well, first question, Joe... What would you say the advantages to an advisor are of joining an independent RIA firm like you did?
 
Joe Zappia: Well, I think that any great advisor ... And what I mean by that is an advisor that knows how to put the clients first, has some level of empathy, et cetera, can do a good job for their clients pretty much at any firm. It's just a question of how much friction they want to deal with on a day-to-day basis to deliver that to their clients.
 
I had made the decision that I had had enough friction and that I wanted to really go out on my own and create a firm that we could put the client in the center and then build all the products and services around that client. And I think that's really the big ... that's really one of the biggest advantages to being independent. If you have a vision of what you want your service model to look like, what you want your technology to look like, or how you present yourself to the client, what sort of products and services and solutions you want to offer them, then going independent is a great thing.
 
Jerry Cobb: Can you talk a little bit about how the matchmaking process worked that ultimately led you to join LVW? What were you looking for first in an independent firm?
 
Joe Zappia: So, I didn't really know what I was looking for when I first made the decision that I needed to make a change. In fact, I talked with other brokerage firms, private banks, I spoke with a couple of aggregators like Focus Financial, et cetera, just to just understand better what the independent space looked like. And along the way, I thought that we should make a move to a place that had a process, had infrastructure, had significant resources around research, and diligence around ... building portfolios, structured investment committee, etc. And so when I made the decision that I wanted to go independent with a firm that had some of those attributes, it was pretty easy for me to start narrowing down the choices.
 
Jerry Cobb: What about considerations like ... governance and equity ownership? Were those important criteria for you?
 
Joe Zappia: Yeah, absolutely. So right from the very beginning when Lori Van Dusen, my partner here at LVW, and I moved our dialogue from just simply due diligence and fact finding, on my part, to, "Hey, maybe we should become partners and build something better than we both have right now," the consideration right from that point forward was that I would be a decision maker, I would be an owner, and I would be in control with my partner. But in control of how we structured the firm, the vision for the firm, hiring, in the ways in which we would advance and elevate our culture and client experience.
 
Jerry Cobb: Interesting. And what about legacy? Was that important to you? And by that I mean, typically we think of the wirehouse scenario as an advisor reaches a certain peak and slows down and eventually leaves the firm with some kind of package. Whereas, in the independent space you really have this opportunity to build and leave a legacy. Was any of that important in your decision making?
 
Joe Zappia: Yeah, absolutely. That's a great question, and it was a big part of our decision-making. You know, over the 20 plus year career that I had developed a pretty significant book of business, and it's changed now at the wirehouse firms, but at the time, there really wasn't much in the way of legacy planning or any real value that could pass on to family members, my wife, et cetera. And at the same time, there was no way to really capture the true value of the business that you had built as you transitioned from, as you said, doing what I do today to eventually transitioning and recirculating some of that cash flow to the next generation.
 
So that was a big part of my decision to go independent because I knew that it would help protect my family ... and also protect our clients because I could focus and invest resources, and building the right team around me for the appropriate succession plan.
 
Jerry Cobb: So knowing what you know now, and after having made the journey to independence, what kind of advice would you give to someone looking to join an independent firm?
 
Joe Zappia: The advice that I would give is, do lots of research, do lots of due diligence, don't be sold by the sizzle, and don't do it purely for cash flow. I think that going independent is, at times, it's a tall hill to climb. There's lots of work, lots of effort involved. I think the rewards are great.
 
Now, one of the things that's changed… is there's plenty of ways to go independent and join independent firms but come in to larger organizations that have already created so much of the process and the structure that you need to be successful. So it's really kind of an exciting time now for advisors to go independent because it's much easier for someone to come and plug in.
 
Joe Zappia is a Principal and Co-chief Investment Officer at LVW Advisors, in Pittsford, New York.
 
Today's story focused on exploring an alternative path to independence: joining a pre-existing independent RIA firm, as opposed to starting your own.
 
If you're thinking of going independent and don't know if you want to start your own firm or join one, here's a few things to think about:
 
Starting your own firm requires a desire to not only work with clients but also to run a business. For those who are comfortable embracing a little risk and taking on a start-up, it may offer you a little more control over the business as a whole than joining another firm would.
 
Joining a pre-existing independent RIA firm will allow you to focus more on working directly with clients. In addition, you'll get the kind of flexible infrastructure typical of an independent RIA firm, which will allow you the freedom to serve clients in a way that's best for them.
 
If you're contemplating joining an existing RIA firm, this is what you should keep in mind to make sure it's a good fit:
 
First make sure the firm shares your values when it comes to client services, and that you're not replicating the kind of environment that you're leaving.
 
Look for a firm which has employees that have complementary skill sets, so you can confirm that what you're offering will add value to the firm, and that you're joining a workforce that will help you grow professionally.
 
And finally, going independent doesn't mean going it alone.
 
Many have blazed the trail before you, and you can benefit not only from others' expertise, but also from the added infrastructure that's available to support independent firms.
 
As you know, thousands of financial advisors across the country take the leap and become independent RIAs.
 
Each story, and each transition, is unique. But the steps they take, and the support they need, is often the same.
 
Learn more—lots more—about the RIA model, and how Schwab Advisor Services can help you forge your own path to independence.
 
Find us online, at Schwab.com/RIA, or look for the link in the show description to this episode.
 
I'm Jerry Cobb, and this is How I Became an Independent RIA, an original podcast from Schwab Advisor Services.
 
Speaker 4: Schwab Advisor Services serves independent investment advisors and includes the custody, trading, and support services of Schwab.
 
The comments, views, and opinions expressed in the podcast are those of the speakers and do not necessarily represent the views of Schwab.
 
They are provided for informational purposes only.
 
Experiences expressed by advisors may not be representative of the experience of other advisors and are not a guarantee of future success.
 
The above-mentioned firms and their employees are not affiliated with or employees of Schwab unless otherwise noted.
 
They should not be construed as a recommendation, endorsement of, or sponsorship by Schwab.
 
Data contained herein from third-party providers is obtained from what are considered reliable sources.
 
However, its accuracy, completeness, or reliability cannot be guaranteed. Copyright 2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.
 
Independent investment advisors are not owned by, affiliated with, or supervised by Schwab.
 
Compliance Code: (1219-96S1) (0520-0WHK)
 

Key takeaways

Signs it's time to leave

Joe thought he would retire with his previous firm. Then a merger changed things. The issues started out small. But over time, they started to add up—to the point where Joe felt it hindered his, and his team's, ability to serve his clients. That's when he knew it was time to explore the independent RIA model.

Take the assessment to see if the time is right for you >
 

What to look for in an advisor partner

Joe met with Lori Van Dusen, owner of LVW Advisors, to learn about going independent and opening his own firm. Instead, they discovered they'd make a stronger team together. 

Start planning your transition >


The benefits of joining an existing RIA

Joe had to make choices and file paperwork to go independent. But with most of the infrastructure already in place at LVW Advisors, Joe and Lori just had to make room for the new recruits. The strategic move gave Joe the comfort of knowing his team was joining an established and stable firm. 

Get help planning your firm >

 

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The above-mentioned firms and their employees are not affiliated with or employees of Schwab unless otherwise noted. They should not be construed as a recommendation, endorsement of, or sponsorship by Schwab. The views expressed are those of the third party and are provided for informational purposes only. Third-party firms and their employees are not affiliated with or an employee of Schwab. Experiences expressed by advisors may not be representative of the experience of other advisors and are not a guarantee of future success. The data contained herein from third-party providers is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.

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