Exploring

independence
An overview of the
Registered Investment
Advisor model
“The most rewarding aspect
of being independent is
knowing that we own our
business. We are our brand.”
—Stephen Korving
President, Korving & Company

Exploring independence 2
Freedom leads to options
and opportunity
Investment advisors today have an unprecedented number
of options. Sophisticated technology and increased access
to financial products make it easier than ever to explore
independence. Advisors can now look beyond traditional
wirehouses and independent broker-dealer (IBD) options, thanks
to an expanded array of Registered Investment Advisor (RIA)
business models.

Options for clients have grown as well, and online In the following pages, we take
financial management has become mainstream. a close look at:
Delivering genuine, unbiased investment advice • RIA channel growth
is more important than ever. This is where • Benefits of independence
independent investment advisors excel. Clients
• Differences between RIA models
recognize this and are moving their assets
accordingly. • Economics of RIA firms
• The custodian’s role
More and more investment advisors are seizing
the opportunity to create the future they imagine We also discuss time-tested steps
for themselves and their clients. Independence for making your transformation.
offers unparalleled freedom and control. As an
independent investment advisor, you have the
potential to keep up to 100% of your revenue. You
determine the shape of your business. You serve
clients the way you know is best.

Exploring independence 3
Why more investment advisors
are choosing the RIA model
The RIA channel has been growing steadily for the past several years. As support services
continue to expand and analysts are bullish on the channel’s future, investment advisors
feel more confident in their options.

Industry research shows that the RIA channel has They’re dissatisfied with the culture
grown, even as the wirehouse and IBD channels of wirehouse firms.
have faced declines since 2008. The number Although most investment advisors say they
of investment advisors at wirehouses and IBDs put clients first, many in the wirehouse channel
shrank by 5.9% and 10.1%, respectively, from feel they are ultimately working for their firms
2015 to 2020.1 as much as for their clients. Investment advisors
bristle at this lack of autonomy, in addition to the
Conversely, the RIA channel has shown sustained fees and “haircuts” that wirehouses sometimes
growth, adding nearly 10,000 investment advisors impose on their earnings.
(including dually registered) from 2015 to 2020.2
Over one-quarter (25.8%) of assets are now They want to build their own brands.
managed by RIA firms, up from 19.6% in 2010.3 Investors may trust their investment advisors
The growth in the RIA channel is pronounced, absolutely but not necessarily value the firms
with its average compound annual growth rate where they work. Going independent can help
increasing 13.3% from 2015 to 2020 (which investment advisors strengthen their client
includes hybrid RIAs).4 relationships. Investment advisors at RIA firms can
build their brands from scratch, matching them to
Many investment advisors are upbeat about the
client priorities and investment advisor goals.
channel’s future. In a Schwab survey of investment
advisors at major financial firms, over half They want access to best-of-breed
of respondents (57%) prefer the RIA model over technology and support.
other models. Indeed, many investment advisors Some wirehouse and IBD investment advisors are
(47%) believe the RIA industry has not fully limited by their options for technology, compliance,
matured and will continue to grow at a higher and management support—and sometimes report
rate than the market.5 paying for services they don’t want or need. More
and more, these investment advisors are turning
to the RIA channel to find the freedom to choose
Why are investment advisors
the platform and services that best fit their firms’
flocking to the RIA model? unique needs.
They’re entrepreneurs. Do you crave more freedom and flexibility?
Many investment advisors have an enterprising Do you want to be your own boss and call
mindset. They’re self-starters, organizers, and the shots? You may be ready to join the RIA
motivators who are invigorated rather than movement.
intimidated by challenges. To many entrepreneurs,
starting their own firms is a lifestyle choice as
much as a business decision.

Exploring independence 4
“I became an
independent
investment
advisor because
this is the future.”
—Amit Stavinsky
CEO, Managing Director,
and Lead Advisor,
Tamar Securities

6.1 % Wirehouse and IBD channels

have shrunk annually by

1.2%
CAGR
More investment advisors
in the RIA channel, including CAGR
hybrid RIAs, from 2019 to 20206
and

3.1%
Compound annual growth rate (CAGR)

13.3 % CAGR

CAGR
respectively, since 20108
Increase in RIA channel assets,
including those of hybrid RIAs,
from 2015 to 20207
Exploring independence 5
 At RIAs, assets under
management have grown

153 %
at the median from
2016 through 20219

Exploring independence 6
6 EXPLORING INDEPENDENCE AS AN RIA BECOMING AN RIA 6
The fiduciary standard
Independent investment advisors serve as
Why it matters
fiduciaries for their clients. They provide Adhering to the fiduciary standard
personalized financial advice and services. has long been a mainstay for
independent investment advisors,
Many investment advisors at RIA firms work
an especially important factor in an
with complex portfolios and address unique
environment where investors are
needs that require a highly customized level
increasingly wary about to whom they
of investment management strategy and
entrust their assets. When clients know
consultation. Under the fiduciary standard,
you are legally required to act in their
firms are required by law to act in the best
best interests, it can help you build
interests of their clients.
trust and forge stronger relationships.
RIA firms are registered with the Securities and
Exchange Commission (SEC) or state securities
regulators and are held to the fiduciary standard
by the Investment Advisers Act of 1940 as well
as similar state laws. According to the SEC, as
a fiduciary, “an adviser must eliminate or at least
expose” all conflicts of interest and “provide
investment advice that is in the best interest of
the client.” 10 Investment advisors are required
to file annual Form ADVs describing their firms’
business practices and client communications.
Registration with the SEC or a state regulator
does not mean the information in an RIA’s ADV
has been verified or approved.

Independent investment advisors and other financial services professionals receive compensation for services in a variety of ways. It is the responsibility
of each investor to determine which method of compensation offers the lowest total costs and best aligns the interests and needs of the investor with
those of the investment professional chosen.

Exploring independence 7
Choosing independence
is good for business
Investment advisors cite numerous benefits to adopting the RIA model, including
greater autonomy and the potential for a larger income. However, much of it boils
down to a single concept: control.

A Schwab study asked investment advisors at Income potential

firms of all sizes why they found the RIA model As an investment advisor at an RIA firm,
appealing. Although the responses varied, they you determine how much of the revenue you
all shared a common theme: Investment advisors keep—up to 100%, depending on the model of
want the ability to shape their businesses and independence you choose (see page 11). You can
serve clients as they see fit.11 assert complete control over fees and expenses,
choosing only the products and services you need.
Client experience
When you’re the owner, you can also build equity
While most investment advisors put a high as your firm grows, leading to a higher long-term
priority on client relationships, the RIA model payout should you choose to sell the business
helps them deliver on that promise. Investment down the road.
advisors at RIA firms can decide how to engage
and communicate with clients—from building a Independence in the RIA channel may be
marketing plan to creating a customized product attractive for several more reasons, including:
portfolio for each client.
Access to the right tools
By contrast, some investment advisors are Independent investment advisors can choose
confined to their firm’s business model, which the technology and platform that best suit their
often includes a limited number of products specific needs. The latest portfolio management
or services or prepackaged communications and customer relationship management (CRM)
strategies. In addition, the net compensation systems make it easier to streamline your
of some investment advisors is tied to the workflows, access crucial information, and serve
products they sell. Independent investment clients—all while adapting to your key priorities.
advisors are under no such restrictions. However,
investment advisors at RIA firms are subject to the Opportunity to keep
responsibilities of being a business owner, which commission-based business
may include strategy, management, compliance, Independent investment advisors with successful
and financial performance. Schwab’s support, brokerage businesses don’t have to choose one
services, and technology solutions can help you model over another. By affiliating with a third-
navigate those responsibilities. party IBD, you can offer advisory services through
your RIA firm while keeping your commission-
Autonomy based business.
Independent investment advisors have the final
word on all decisions related to the business. Compliance options
You decide everything from the compensation Investment advisors at RIA firms have more
structure to the technology platform to the sign options when it comes to managing compliance.
on the office door. You can conduct compliance in-house or turn
to a third party for help, freeing up more time
for clients.

Exploring independence 8
 “It’s really about the
freedom to make
decisions—not only
for the business
but for your clients.”
—Colin Higgins
CEO, Summitry

Benefits of independence
Investment advisors who recently started or joined an RIA firm cited these major factors for becoming an
independent advisor:12

1. Greater 2. Higher 3. Ability to 4. More control 5. A

 more
autonomy payout build financial of investment personable
value in an decisions culture
independent and portfolio
business construction
 “Advice is the
Putting clients first most important
For investment advisors, acting in their clients’ best thing you offer
interests is a key principle. Investment advisors
at independent RIA firms have the freedom to put
to your clients.”
clients and their goals above all else. —Leo Arms
President, Thomas Leo Advisory
Karen McCloskey, principal and founder of CMH
Wealth Management in North Hampton, New
Hampshire, appreciates the difference. Formerly
a bank employee, she now owns an RIA firm. “Our
independence benefits clients every day because I
can act on their needs, their instructions, and what’s
going on in the world around us,” she says. “I can “Advice is the most important thing you offer to your
make that adjustment without having to go and get clients,” says Leo Arms, who owns Thomas Leo
layers of approval.” Advisory, an RIA firm in Minneapolis. “They can
get the transaction at many different places.”
According to a Schwab survey, 94% of independent
investment advisors said the freedom to do what is The role of an independent investment advisor, he
best for their clients is the most important reason to says, is to listen to what clients need, help them,
go independent.13 In fact, on average, 87% of clients offer advice, and “ultimately be compensated for
make the jump with investment advisors when they the advice you offer.”
turn independent.14

Study results show that investors are continuing

to choose the RIA model. In Schwab’s 2022 RIA
Benchmarking Study, assets under management
(AUM) grew at an annualized rate of 14.1% from
2017 through 2021 at the median. Advisors
saw strong client growth as well with a median
annualized growth rate of 5.1% over that same
period.15 The RIA model tends to create a
special kind of investment advisor-client
relationship because:

• It offers transparency. As an independent advisor,

you can be forthcoming with your fees, giving
clients a clear picture of what they’re paying.
• You can provide unfiltered advice. You’re under
no obligation to sell proprietary products, and you
can choose the solutions you think are best for
your clients.
• You’re free to choose only the investments that
help fulfill clients’ goals.

Exploring independence 10
Understanding the differences
between RIA models
The landscape is rapidly changing, and investment advisors have more options for
levels of independence than ever before. But before making a choice, investment
advisors should decide exactly who they want to be.

Most independence Least independence

1 2 3 4 5
Create Outsource Share Affiliate with Join an
your own certain ownership an existing independent
independent RIA firm with an equity RIA firm RIA firm as
RIA firm operations partner an employee

Select products, From cybersecurity Equity partners help Manage your book Joining an existing
services, and to compliance, RIAs with all aspects of of business while RIA firm as an
technology to best can access time- running your firm. operating under employee allows you
serve your clients. saving support. You They also take on the umbrella of an to take advantage
Build equity and can get support on a portion of the established brand. of the support of an
choose how you aspects of operations risk and share in Serve clients your established brand
grow. This is your and still maintain your rewards. way, and let the firm and infrastructure.
vision realized. handle back-office
full ownership.
operations.

There’s no right or wrong way to go independent Fortunately, the RIA channel has matured
in the RIA channel. Different models appeal to dramatically in recent years as thousands
different personalities and aspirations. of investment advisors have successfully
chosen the well-worn path to independence.
Some investment advisors envision themselves The transition no longer requires a leap of faith.
in the driver’s seat and relish the idea of building No matter what option you choose, you can
a firm from the ground up. Others want to leverage available resources and support to help
control their revenue and set their own hours with the transition.
but aren’t crazy about negotiating contracts
with multiple vendors for office and technology You have five models to choose from.
support. And some just want more flexibility in
their client relationships but don’t want to run
a business.

Exploring independence 11
Finding the right fit
Create your own Outsource certain
1 2
independent RIA firm RIA firm operations

“I want the freedom “I want to be the boss,

to run the business but I don’t want to deal
my way.” with all the details.”
What is it? What is it?
You open a firm and maintain full control of You open a firm but use the services of a platform
the business. provider for help.

Priorities Priorities
• Full ownership • Full ownership
• Maximum control and responsibility • More time to focus on the areas of business
• 100% of revenue and any earned equity you care about most
• 100% of the equity as your firm grows
Structure
You’re the true business owner. You decide Structure
which vendors and products best fit the business You still make most of the decisions, but you hire
and make all the necessary arrangements. This a platform provider for à la carte services. These
includes everything from hiring the cleaning service services may relate to compliance, technology,
to establishing a brand identity and company reporting, financing, or office setup, depending on
culture. You are responsible for all expenses. the arrangement. The platform provider contracts
with all the vendors but provides some flexibility in
Custodians like Schwab often offer consulting vendor choice. You pay a platform fee for the services
support, introducing advisors to third-party vendors and are responsible for all expenses.
to help with office setup, compliance, technology,
and more. Custodians like Schwab often offer consulting
support, introducing advisors to third-party vendors
Main benefits to help with office setup, compliance, technology,
As an RIA owner with full control, you can run and more.
the business however you want. You can keep
100% of the revenue, retain 100% of the equity Main benefits
the firm builds through the years, or choose to You have full control over the business but with
take distributions as you see fit. fewer decision-making hassles. Notably, the platform
provider doesn’t take any ownership stake, so you
Other considerations still receive 100% of the equity as the firm grows.
This model can also work well for multiple investment
advisors entering into a formal partnership, provided Other considerations
they have complementary strengths. It’s relatively simple to transition from this model to
full independence should you want more control.

Exploring independence 12
 Share ownership with Affiliate with an
3 4
an equity partner existing RIA firm

“I’m willing to trade some “I want to be independent

control for financial but not necessarily
support up front.” self-employed.”
What is it? What is it?
You open a firm with the help of a financial partner You open a new office for an established firm and
who invests in the business. operate under that firm’s supervision.

Priorities Priorities
• Upfront payout • Freedom to focus on clients and
• Easy transition with the holding company business development
handling most of the setup • Infrastructure support
• Ability to focus on clients • Greater flexibility in communications
and product choice than at a traditional
Structure wirehouse or broker-dealer
You sell a portion of your revenue stream at a
multiple to a holding company, which buys a Structure
majority or a minority stake in the firm. This, in As with the financial partner model, you enter into a
effect, monetizes part of your book. You can take financial deal and structure similar to a wirehouse’s.
the payout in cash, in partial equity, or in some You join an established brand and gain access to
combination of the two. The financial arrangement the firm’s built-in infrastructure, which may include
is similar to a wirehouse relationship but typically technology, compliance, and more. One crucial
offers you a better upside. difference, however, is the ownership structure, as
investment advisors in this model often acquire an
Main benefits equity stake in the parent company.
You receive cash up front, along with the potential for
additional payouts as your business grows—typically Main benefits
in years three and six. The transition is also relatively You have more flexibility in client communications and
easy, as the holding company handles most of the product choice than you would at a wirehouse. You
setup work. This gives you more time to help clients also have the potential to earn more, depending on the
achieve their goals. terms of the deal. And because someone else handles
the operational details, you can devote most of your
Other considerations attention to your clients.
This is a popular model among investment advisors
who are nearing the end of their careers and want to Other considerations
cash out and enjoy their retirement and for investment The firm’s existing infrastructure and support
advisors who want a lump sum to help pay off a loan. make the transition from a wirehouse relatively
It’s also a good option for succession planning, as it easy. Succession planning is also simple compared
allows a firm to cash out an experienced partner while with some other models because the parameters
ceding the business to younger partners. are already defined.

Exploring independence 13
  oining an independent
J Can I keep my commission-
5
RIA firm as an employee based business?
Many investment advisors who receive revenue
“I want to take smaller from commission-based business don’t want
to give it up when going independent. To keep
steps to independence.” a foot in both worlds, you may choose one of
two hybrid models.

What is it? • Dually registered investment advisor:

You join an existing RIA firm as an employee, You start or join a fee-based RIA firm
potential partner, or independent contractor. while affiliating with an IBD for transaction
business. You may have more flexibility in
Priorities choosing advisory services and investment
• Low-risk transition without the challenge options and may leverage IBD turnkey
of building your own infrastructure infrastructure or assemble a customized
platform.
• Established brand
• Semi-captive: You affiliate with a broker-
• More time to focus on clients dealer that has a corporate RIA and
Structure restrictions on RIA custodian access. The
IBD chooses the custodian, manages and
The structure can vary widely, depending on the
sometimes restricts investment options, and
existing firm. Some firms are content to split some
provides turnkey infrastructure and support.
expenses, take a percentage of your revenue, and
let you work independently. Others are looking for The hybrid model is increasingly popular.
a complementary fit, perhaps targeting investment In fact, no other channel in the industry is
advisors who run different investment models or growing faster: The number of hybrid RIAs
who blend in with the firm’s culture. Financial terms grew 5.7% year over year during the last
are negotiated up front. 10 years.16
Main benefits Choosing a hybrid model has implications
You can negotiate the best possible terms for your for all aspects of your business.
situation. That could mean an upfront payout,
a partnership with long-term equity, or some Key considerations include:
combination of the two. You don’t have to deal with
the challenges of building your own infrastructure, • How important is offering diverse brokerage
and you’re free to interact with clients as a fully and advisory products?
independent investment advisor, provided your • What are your long-term and short-
strategy matches the firm’s. term revenue goals?
Other considerations • Do you want the freedom to choose business
In many ways, this model provides the softest partners and vendors?
landing, as you’re piggybacking on an existing • What is your growth strategy?
firm’s success. Most investment advisors report a • Is equity ownership a long-term financial
smooth transition, with minimal disruption to their and business objective?
practices. Culture is key, however. You should do
your research and find a firm with similar values
and aspirations.

Exploring independence 14
RIA firms enjoy increased earning potential
The benefits of independence are an easy sell to many investment advisors, but a crucial
question remains: How do the economics work? At Schwab, we use our experience
with investment advisors to run the numbers and show how an independent investment
advisor’s potential revenue compares with that in the wirehouse and IBD models.

In analyzing the revenue potential of the RIA Investment advisors working in the IBD channel
model, most analysts return to the same rough generally control up to 85% of their revenue
numbers time and again: 40, 85, and 100. These (roughly 15% goes to broker-dealer fees).
refer to the average percentage of client fees In practice, however, they pay roughly 30%
that investment advisors typically earn in each of that revenue in expenses, leaving them
channel: 40% in a wirehouse, 85% in an IBD, with 55% of the revenue—still an improvement
and 100% in an RIA.17 over what they could earn at a wirehouse.
It’s important to note, however, that these Fully independent investment advisors are in the
percentages do not account for expenses but best position to maximize their revenue. With no
instead refer to the percentage of revenue wirehouse or broker fees, they control 100% of
under an investment advisor’s control. their revenue. Assuming they dedicate 30% of that
revenue toward expenses, that leaves them with
Wirehouse investment advisors earn a flat
a net compensation of 70%.
rate, with the remainder of the revenue belonging
to the firm. The firm then divides its share Hybrid investment advisors using an RIA as a
between expenses and shareholder profit. From custodian also tend to earn a higher payout
the investment advisor’s perspective, expenses percentage than IBDs, as they may pay broker-
are fixed. On the plus side, this means wirehouse dealer fees only on their commission-based
investment advisors don’t need to worry about business. In contrast, IBDs traditionally pay
paying monthly invoices or negotiating with vendors. broker-dealer fees on all their assets. Hybrid
On the downside, these advisors often end up investment advisors using an RIA as a custodian
paying for products and services they don’t use. typically fall between the IBD and RIA on the
chart below.

Investment advisor earning potential

Using $1 million in revenue as an example

Wirehouse IBD RIA

Revenue $1,000,000 $1,000,000 $1,000,000
Fees/expenses
House ($600,000) — —
Broker-dealer fee — ($150,000) —
Expenses — ($300,000) ($300,000)
Payout or profit $400,000 $550,000 $700,000

Source: Schwab estimates. Hypothetical and for illustrative purposes only. Past performance is not an indicator of future results. Projections based on the RIA
Economic Discovery Tool. Payout ranges: The Cerulli Report, U.S. Advisor Metrics 2020. Examples provided represent average results and are for informational
purposes only. This is not intended to be reflective of results you can expect to see.

Exploring independence 15
 If an RIA firm is well managed, investment
advisors can often increase their payout by a few
percentage points. According to Schwab’s 2022 RIA
Benchmarking Study, firms with the most disciplined
expense controls reported a total overhead margin
Potential first-year profit of 23.8%, leaving 76.2% to pay professional staff or
and income themselves, or to reinvest in the firm.*

RIA model Schwab Advisor Services™ offers business

$994,075 and technology consulting to help independent
investment advisors optimize, protect, and grow
their firms. Likewise, Schwab offers a range of
networking, education, and leadership programs
Wirehouse
to help RIA firms develop their employees’ skills.
$608,000
Schwab’s annual RIA Benchmarking Study is a good
example of the support available for independent
investment advisors. It captures trends and best
practices in the RIA industry based on data from
participating firms. Each investment advisor who
Investment advisors who switch to the RIA participates in the study receives a customized report
channel can potentially earn substantially that offers key insights about their firm’s performance
higher net incomes compared with their and evaluates how their firm stacks up against their
current environment. peers. Investment advisors can use this study to
assess where they are, where they want to go, and
Source: Schwab RIA Economic Discovery Tool. Assumptions:
$200 million in AUM, 2 owners/2 employees, 100% fee-based, how they can get there.
40% payout. Hypothetical example.

Schwab RIA Economic Discovery Tool

You can use the RIA Economic Discovery Tool to evaluate
how you would fare by going independent. Simply enter
your specific data points into the tool. Using insights from
Schwab’s RIA Benchmarking studies and the experiences
of nearly 15,000 firms, the tool charts your potential
income, profit, and business equity.

Enter data about your business and receive a

customized report. To learn more about the tool,
see [Link]/econ-tools.

*Total overhead margin reflects the twentieth percentile result for all firms with $25 million or more in AUM. 2022 RIA Benchmarking Study from Charles Schwab, fielded
January to March 2022. Study contains self-reported data from 1,218 firms and was not independently verified. Past performance is not an indicator of future results.

Exploring independence 16
 Putting the numbers into context
What do the percentages mean in practice?
Using the RIA Economic Discovery Tool, Schwab There are several methods for valuing firms, but
evaluated the potential increase in profits for a in general, multiples are higher in the RIA model
hypothetical wirehouse advisor transitioning to than in the wirehouse and IBD channels. IBD
full independence as an RIA. firms are usually valued between the wirehouse
and RIA models because of their mix of fee-based
The example on page 16 assumes the investment and commission-based assets.
advisor is transferring $200 million in AUM and
is earning an income of roughly $608,000 at Combine the potential income an investment
the wirehouse. After accounting for expenses— advisor earns in each channel with the business
compliance, technology, and marketing—and equity, and the financial disparity between models
transition costs, the analysis concluded that an is even greater.
investment advisor at an RIA firm could potentially
earn more than $994,074 in the first year on the It’s also important to note that in the wirehouse
same AUM. model, you don’t get to choose who receives your
book of business upon retirement. While the
Business equity and succession planning IBD model offers more control, the RIA model
In addition to potentially earning higher incomes, gives you full autonomy to decide the legacy of
owners of RIA firms also maintain another financial your firm.
advantage over wirehouse investment advisors:
equity. The RIA model allows owners to lay the
foundation for a potentially lucrative exit strategy.

As an RIA owner, you have plenty of options for Learning to

succession planning. You can sell your business, manage expenses
merge with another firm, or recruit an external or
internal successor. In each case, you can choose As an RIA firm owner, you are in full
the outcome and financial terms that best match control of expenses. You decide how
your goals. much to spend on things like technology,
compliance, insurance, marketing, and
office setup. Unlike wirehouses and, to
some degree, IBDs, RIAs never have to
pay for services they don’t use.
“Part of the reason you go independent
But keeping a tight leash on expenses
is to grow. Before, as much as you grew, isn’t always easy. That’s why Schwab
the house took 60% of that growth. offers guidance based on the experience
of collaborating with nearly 15,000 RIA
Now, once you have your expenses firms to help them manage costs, create
covered, it’s nice to see how every new capacity, and sharpen productivity.
dollar of revenue can impact your cash
flow and also the value of your firm.”
—Brian Power
Principal and Wealth Management Advisor,
Gateway Advisory LLC

Exploring independence 17
Understanding startup costs
Once you decide to go independent, more • What other infrastructure is required
practical matters loom: How much will it cost, to open the doors?
and how will you manage this? • Am I keeping my commission business?
If so, who will be my broker-dealer?
Schwab helps you get answers with tools to
help forecast and track costs during startup • How will I handle trading and technology?
and the years that follow. Schwab’s integrated
team of professionals helps investment advisors To provide a sense of likely startup costs,
evaluate the economics of their business, build a the hypotheticals below reflect conversations
strategic plan for success, and connect with key with investment advisors who recently made
third-party vendors along the way. the switch.

Here are a few questions that will help you Keep in mind that costs can vary widely based
determine startup costs: on the size of the team, the complexity of
the offer, and which services you choose to
• Am I starting a firm or joining an existing RIA? outsource. Many of these decisions involve
• What’s my current and future staffing mix? trade-offs. For example, choosing to keep most
How much will my employees be paid? services in-house reduces upfront costs but
• How much space does my firm need? takes up valuable staff time.

Projected startup costs for transitioning from a wirehouse

$15,000–$35,000 $35,000–$100,000 $100,000+

Size: <$100 million in AUM Size: <$250 million in AUM Size: Larger, more complex firms

Ownership: Single owner and Ownership: One owner and Ownership: Multiple
no staff one or two staff members owners and staff members

Major considerations: Major considerations: Major considerations:

• Technology sophistication • Technology and benefits • Technology and benefits
• Level of upfront legal support outsourcing outsourcing

• Initial branding impact • Initial branding impact • Initial branding impact

• Choice of office space (home • Choice of office space • Website sophistication

office, corporate office suite, (corporate office suite versus • Extent of office buildout
standalone office lease) standalone office lease) and furnishing
• Buy versus lease decisions
on equipment

Note: Investment advisors transitioning from the IBD channel already have most of their infrastructure in place. Their expenses
are typically limited to technology, rebranding, and legal assistance. Assuming average legal support, transition costs range from
$15,000 to $30,000, based on the level of technology and branding sophistication the investment advisor elects.

Source: Schwab RIA Economic Discovery Tool.

Exploring independence 18
Consider long-term value
In a Schwab survey, 71% of
when evaluating your options independent advisors said that an
opportunity to earn a larger
71%
Assume that the hypothetical firm with two
investment advisors pays off a combined annual income was an important
outstanding forgivable loan with a balance of factor for going independent.
$1.6 million. Based on the incremental income
Source: Independent Advisor Sophomore Study from Schwab Advisor Services,
you can generate in a move to the RIA model, Logica Research (formerly Koski Research), March 2018.
you can break even in a little over three years.

The chart here also illustrates your potential

cumulative income in the RIA scenario, showing Cumulative income
significant growth year over year. Not shown $14M
is the increase in your enterprise value as you
$12M
continue to build equity in the growing firm.
$10M

$8M

Source: Schwab RIA Economic Discovery Tool. Assumptions: $6M

$200 million in AUM, 2 owners/2 employees, 100% fee-based.
Hypothetical example. The results generated by the RIA Economic $4M
Discovery Tool are limited as set forth in the Terms, Conditions,
$2M
and Assumptions. The scenarios and alternatives covered are not
exhaustive and may not be representative of those you actually
encounter. Moreover, the simulated pro forma results are materially 1 year 3 years 5 years 7 years 9 years
dependent on various assumptions and inputs, some of which are
RIA model Full affiliation
made and specified by you and some of which are static.

Exploring independence 19
The custodian supports the RIA*
RIA custodians do much more than simply hold client assets. They can also provide
a range of investment and banking products, business management, technology,
and service support to RIA firms.

Custodians can offer a wide range of financial Moreover, custodians play an integral role in
products, technology options, educational helping you deliver your ideal client experience.
resources, and business consultants. A custodian
can help you explore third-party providers and Given the importance of the relationship, you
solutions. Many custodians have large networks should thoroughly evaluate your options before
and enterprise partnerships with leading providers. choosing a custodian—keeping in mind that you
can freely move from one custodian to another
Third-party consultants work closely with you to and choose only the services you want.
address your unique business needs, assist you
while you develop a customized transition plan, and
ensure a smooth client account setup and transfer
process. At the same time, custodians also provide
thought leadership and industry insights.

*Investment advisors should consult with their compliance, legal, and tax partners before making a decision. Schwab does not provide investment planning, legal,
regulatory, tax, or compliance advice.

Exploring independence 20
 Schwab Advisor Services
Schwab helped pioneer the RIA industry when Our Transition Consultants can also arrange
we launched our custody services more than detailed training and resources, which can be
30 years ago, and we have led the evolution of customized and include topics such as client
the model ever since. With more than $3 trillion and employee compensation, strategic planning,
in client assets, Schwab Advisor Services™ and and creating a referral culture.
TD Ameritrade are the market leaders in RIA
custodianship.18 In fact, more independent Technology consulting
investment advisors work with and entrust more Technology plays a pivotal role in your firm’s
assets to Schwab than to any other custodian in success. That’s why Schwab’s experienced
the industry. Schwab offers a full menu of services professionals help you assess the technologies
for RIA firms as part of our longtime commitment and digital workflows required to support your
to—and vision for—independent investment ideal client experience. They’ll guide you through
advisors and the future of the RIA channel. exploring and evaluating third-party providers and
solutions. Then they’ll help you outline the digital
While launching a new RIA firm can be exciting, strategy and step-by-step plan to bring your vision
it can also be intimidating, especially for to life.
investment advisors who have no experience
running their own businesses. Schwab helps Compliance resources
smooth the transition process with integrated Schwab connects investment advisors to
teams of professionals specializing in key third-party resources for compliance support,
business issues. including consulting, insurance, recordkeeping,
and software.
Business consulting
Investment advisors working with Schwab gain RIA Benchmarking Study
insights from more than 190 years of collective This powerful tool gives RIA firms access to key
experience, more than 500 unique consulting business metrics, best practices, and insights
engagements each year, and data from nearly from their colleagues in the RIA industry. It helps
15,000 RIA firms. Schwab consultants help analyze investment advisors evaluate their firm’s strengths
the economics of transition and design your ideal and opportunities. Each participating firm receives
firm and client experience. Consultants work a comprehensive analysis of the firm’s performance
with you to create a strategic business plan and relative to its peers, along with insights into strategy,
engage third-party providers. Then they collaborate business development, and financial performance.
with you to create and implement a client
communication plan that carries through launch.

Consulting starts well before you become a client

of Schwab and continues as you grow.

“The difference between being the client of a custodian and being an

employee at a large national firm is like night and day. If you work for
a firm with 10,000 advisors, you can feel like the company doesn’t pay
attention to you and what you need. But when you’re a client, they’re
in business to serve you.”
—M.J. Nodilo, AIF®
Regional Director and Partner, EP Wealth Advisors

Exploring independence 21
“There are people out
there who will listen
and understand your
needs. You don’t have
to go it alone and search
for the best options
without guidance.”
—David Bromelkamp
President and CEO,
Allodium Investment Consultants

Exploring independence 22
Choosing the right technology
Wirehouses and IBDs often offer one-size-fits-all When choosing technology, you should also
technology without customization. Investment consider the degree of support available. Schwab’s
advisors working for these firms could end up experienced technology professionals can help
paying for solutions they don’t want or use. Even you map out technology configurations, engage
more frustrating, they’re stuck with the technology with third-party providers, and create efficient
package even if it doesn’t perform to their digital workflows. Schwab can help you get the
expectations. most out of your technology—CRM and portfolio
management, cybersecurity, mobile access,
As an independent investment advisor, on the automated investment tools, and more—both
other hand, you have the freedom to choose the today and as your needs evolve.
technology you want. And you’re not restricted to
one company’s technology.

With over 30 years of working with and learning

from investment advisors, Schwab has developed “One of the great things about
a flexible technology platform designed to help the RIA model is that you get
investment advisors manage their entire office—
from front to back. Schwab’s platform combines to pick and choose the different
expertise and advanced proprietary tools with technology packages that best
best-in-breed third-party solutions that provide
you with an integrated, comprehensive, end-to-
fit your clients’ needs.”
end solution. This customizable platform can help —Fran Hoey, CFM, CIMA®, CFP®
you share information, stay connected with clients, President, Hoey Investments
and get your approvals on the go.

With the right technology at your fingertips, it’s

easier to anticipate client needs, demonstrate
your value, and build the business you want.

Exploring independence 23
Making the transition
Transitioning to independence can be intimidating.
Investment advisors on the verge of starting, 3 time-tested
affiliating with, or joining an RIA firm often wonder
about timing, costs, and legal risks, among other
steps to success
factors. Many are particularly concerned about how
the transition will affect their clients. Discover
Fortunately, resources are available to help you your options
make the transition. Most custodians offer at least and economics.
some transition support—from basic office setup to
assistance through every phase of the move.

With an average tenure of more than nine years at

Plan
the company, the consultants at Schwab Advisor your business
Transition Services® have completed more than and transition.
3,400 advisor transitions to the RIA model and
moved more than $414 billion in AUM.19

Schwab tailors available transition support to your

Launch
business goals. The degree of support varies, but it your new firm.
typically starts with business planning and moves
into other phases.

Schwab’s support services generally include

the following:

Building a transition plan

A Schwab Transition Consultant listens to your
goals, evaluates your needs, and helps you build
a transition plan.

Setting up the business and back office

Schwab can connect you with third-party providers,
including resources for technology, legal and
compliance, office space, marketing, and more.

Transferring client accounts

The Schwab Advisor Transition Services team
helps you create a smooth client account setup
and a hassle-free transfer process.

Building a successful business

Craft a long-term growth strategy and operate more
efficiently with the help of Schwab’s service team,
in-house consultants, and technology platform.

The important thing to remember is that you’re

not alone. Custodians like Schwab have helped
thousands of investment advisors successfully make
the transition to independence. It’s just a matter of
deciding whether independence is the right choice
for you.

Exploring independence 24
“When we go out and
canvass our advisors that
have made the move to
independence, the most
common response we get is,
‘I wish I had done this sooner.’”
—Brian Hamburger
President and CEO, MarketCounsel Consulting
Discover your
own path
Explore your options for
independence. Start a confidential
conversation today.

Contact a Schwab Business Development

Officer at [Link] or
call 877-687-4085.

Exploring independence 26
Sources
1.   The Cerulli Report, U.S. Intermediary Distribution 2021: Leveraging Data to Navigate Change, Exhibit 2.05, Cerulli Associates.
2.   See note 1 above.
3.   The Cerulli Report, U.S. Intermediary Distribution 2021: Leveraging Data to Navigate Change, Exhibit 2.08, Cerulli Associates.
4.   The Cerulli Report, U.S. Intermediary Distribution 2021: Leveraging Data to Navigate Change, Exhibit 2.07, Cerulli Associates.
5.   Charles Schwab Independent Advisor Outlook Study, Wave 29, June 2021.
6.   See note 1 above.
7.   See note 4 above.
8.   See note 1 above.
9. Median results for all firms with $25 million or more in AUM. 2022 RIA Benchmarking Study from Charles Schwab, fielded January to March 2022.
Study contains self-reported data from 1,218 firms and was not independently verified. Figure includes owners’ retirement benefits and $84,250 in
transition costs. Past performance is not an indicator of future results.
10. Commission Interpretation Regarding Standard of Conduct for Investment Advisers, U.S. Securities and Exchange Commission, July 12, 2019.
11. Independent Advisor Sophomore Study from Schwab Advisor Services, Logica Research (formerly Koski Research), March 2018.
12. The Cerulli Report, U.S. RIA Marketplace 2021: Meeting the Demand for Advice, Exhibit 4.01, Cerulli Associates.
13. See note 11 above.
14. See note 11 above.
15. Median 5-year compound annual growth rate over the period from year-end 2016 through 2021 for all firms with $25 million or more in AUM. 2022
RIA Benchmarking Study from Charles Schwab, fielded January to March 2022. Study contains self-reported data from 1,218 firms and was not
independently verified. Past performance is not an indicator of future results.
16. See note 1 above.
17. The Cerulli Report, U.S. Advisor Metrics 2021: Client Acquisition in the Digital Age, Exhibit 2.01, Cerulli Associates.
18. The Cerulli Report, U.S. RIA Marketplace 2021: Meeting the Demand for Advice, Exhibit 2.33—Part 1, Cerulli Associates.
19. ACT Advisor Conversation Services Dashboard Metrics, as of April 2022.

Exploring independence 27
About Schwab Advisor Services

Schwab Advisor Services™ is an industry leader,* providing custodial, operational,

practice management, and trading support. For over 30 years, Schwab Advisor Services
has worked resolutely with independent investment advisors to develop proven
processes and insights for starting, building, and growing RIA businesses. Schwab
Advisor Services has a strong vision for RIAs and their future and is committed to
pushing the financial advising industry forward on investment advisors’ behalf.

*Charles Schwab Strategy.

This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where
specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner,
or investment manager.
Third-party firms and representatives are not affiliated with or employed by Charles Schwab & Co., Inc., and mention of them should
not be construed as a recommendation, endorsement, or sponsorship by Schwab.
Experiences reflected are not a guarantee of future performance or success and may not be representative of your experience.
Schwab designed the RIA Benchmarking Study to capture insights in the RIA industry based on survey responses from individual firms.
The study provides information on topics such as asset and revenue growth, sources of new clients, products and pricing, staffing,
compensation, marketing, technology, and financial performance. Since the inception of the study in 2006, more than 4,300 firms have
participated, with many repeat participants. Fielded from January to March 2022, the study contains self-reported data from 1,218 firms
that custody their assets with Schwab or TD Ameritrade and represents $1.8 trillion in assets under management, making this the leading
study in the RIA industry. Schwab did not independently verify or validate the self-reported information. Participant firms represent
various sizes and business models. They are categorized into seven peer groups by AUM size. The study is part of Schwab Business
Consulting and Education, a practice management offering for RIAs. Grounded in the best practices of leading independent advisory firms,
Business Consulting and Education provides insight, guidance, tools, and resources to help RIAs strategically manage and grow their firm.
The Economic Discovery Tool (Tool) is intended solely for use by investment professionals. The Tool simulates the pro forma financial
results of various hypothetical scenarios for establishing, operating, joining, and/or selling an investment advisory practice or firm
and compares those simulated outcomes to various alternatives. The scenarios and alternatives covered are not exhaustive and may
not be representative of those you actually encounter. Moreover, the simulated pro forma results are materially dependent on various
assumptions and inputs, some of which are made and specified by you and some of which are static. These assumptions and inputs
may not reflect actual circumstances, and thus the Tool is inherently limited and intended for general informational purposes only.
The simulated pro forma results do not reflect, and are not guarantees of, actual or future results. Your actual results may be materially
different from those simulated. Schwab makes no warranty of the accuracy or completeness of the Tool or the simulated pro forma
results and shall have no liability for your use of the Tool. The Tool is not intended to provide financial, investment, legal, tax, or
regulatory compliance advice. You are urged to consult your own professional advisors.
TD Ameritrade Institutional, Division of TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation.
TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.
Schwab Advisor Services serves independent investment advisors and includes the custody trading and support services of Schwab.
Independent investment advisors are not owned by, affiliated with or supervised by Schwab.
©2023 Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC.
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