Episode Transcript
[00:00:01] Speaker A: Hello and welcome everyone. I'm Taylor Pankratz and this is behind the Breakaway. Together with my co host, Jason Barber. This show takes you behind the scenes of leaving your captive broker dealer firm and explores the world of RIA independence.
All opinions expressed on the podcast by the hosts and guests are solely their own opinions and do not reflect the opinion of Uptick Partners. This podcast is for educational purposes only and is not legal advice and should not be relied upon as a basis for any decisions.
All right, behind the Breakaway podcast. Got myself, Taylor Pankratz and Jason Barber here. And today we wanted to talk about an interesting thing that's going on more and more in the industry that at least we're seeing. And we just recently had our first breakaway from this movement, which is the captive employee at a ria. So think of it as normally we recruit people from captive broker dealers that want to go to true fria independence, but we recently had a guy that we broke out from the employee. He was an employee of an RIA and because he wanted to go stay still, be ra, but just not be in the employee side and have kind of the covenants and things that, that he was beholding to at his RIA as an employee. It's an interesting thing because we wouldn't. We weren't really focusing on that niche, but it seems to be a more and more a popular thing for a couple different reasons that we might get into.
[00:01:46] Speaker B: Yeah, yeah. And I've listened to some podcast and read articles where people were talking about this, that this is actually like the new thing is like then when people talk about Breakaway advisors, we're not necessarily just talking about breaking away from broker dealers, but really just breaking away from any kind of a captive employee situation. And when we launched Uptake Partners, I don't know that we really had any kind of thought at that time of, oh, wow, this is going to be a big business for us. But frankly, I think that it could end up being, who knows, right? Who knows how big it could be? It could be half the people that we help are breaking away from RIAs because really, at the end of the day, it's not a whole lot different. You're an employee of an entity. This employee expects you or this employer expects you to be loyal to them. They expect you to go out and get new business. They want to own the clients. They think, hey, you go get the clients. I own the clients. I own the relationship. I own the enterprise value of those relationships. I'm going to pay you, frankly, as little as I can and feel like I can keep you. I'm going to ask you to sign a really stringent contract that's going to prevent you from ever leaving or try to get you to sign a contract like that. And in all of those things, if I didn't tell you differently, you would be like, yeah, that sounds like somebody that would be an employee of a broker dealer. Right. But the reality is the same thing happens in the RIA space. So what's the difference? These are people that want to be independent, they want to be free and they want to be able to own their future. They want to be in a place where they can't get fired from their job. And they want the enterprise. They want to build enterprise value. And I think that this is probably especially for folks that are 20, 30 years old, right. And they're sitting here and they're saying, man, I've got 20 or 30 years ahead of me that I can grow this business. And what is that going to be worth in the future? It's crazy when you think about being an employee of somebody else and helping to make them very wealthy.
[00:03:54] Speaker A: It's not an insignificant amount of money that the enterprise value of your book of business. And if you don't own that, that can. That's a, that might not feel like a big problem right now when you're in your 20s or 30s or 40s, but when you go to try to when you're in your 50s or 60s and want to monetize, that is not possible. If you don't own the business, I mean, it's. Or you're going to get a much lower multiple on the book of business if you don't actually own it. And so it's an interesting thing because we own an ria. I'm just imagining this scenario from an RIA owner's perspective that I think something to be. To make differentiate or make clear is when you have employees that are out there going and prospecting and bringing in new clients and things like that. Those that revenue off of clients that employees go and source and cultivate and all that. You do need to be. You do need to pay them a competitive payout for things. For them to feel good about it.
[00:05:06] Speaker B: Yeah.
[00:05:07] Speaker A: Because you can.
You don't. They're already in the RA channel. So you don't want to put them in this where you're going to get 20 or 30 or 40 or 50% payout on people that you got in prospect and cultivate and run and all these things just, just underneath our brand and I want to call distinction to versus where you just give the employee leads that come in and you're cultivating the marketing flow of this and you're hey, run these people. That's a different thing. If you're going out and finding the business and bringing that business in, that demands a higher payout than just being handed accounts to go run. And so what we are finding is that the, these employee advisors at these RAs are going out and cultivating business. They're prospecting, they're bringing in assets and they're getting a 40 or 50% payout on these people that they're bringing in. And they're man, this, is this the best I can do?
And what's really interesting is that it's not the best they can do. I don't, I, I, I feel like the industry is, I feel like they should be probably be demanding a little bit higher payout than 40 or 50% if they're going out and developing the relationships. But what's an interesting thing that we're finding is the, let's talk about the breakaway process of this where you're already, your clients are already custodied at a Charles Schwab or Fidelity or any of these RIA custodians. Let's talk about not so much the why somebody would do this, because I think most advisors that are the employees, you're either thinking about doing this for a couple reasons. You want to try to make a little bit more money because you want a higher payout by not being the employee on assets that you brought in, or you want the actual enterprise value of owning your book, or you don't want to be an employee and have certain covenants that you have to abide by and feel like you can't ever leave without having to start over or.
[00:07:13] Speaker B: Better technology or having your own mobile app or I mean there's just more control, generally speaking. Yeah.
[00:07:19] Speaker A: And, but let's talk about the actual process of how that's different. How breaking away from your employee or your employer at an RA is different than breaking away from your employer in the BD channel.
[00:07:31] Speaker B: Yeah. So it's interesting. It's a double edged sword. There are some things about it that are tremendously easier and tremendously better. And then there are some things about it that are in some ways actually more difficult. I think you're leaving a RIA and again, I'm sure there's different flavors. But if you're leaving an RIA that's truly using all of the tools that all the Software tools that are available, all of the alternatives that are available in terms of private equity funds, et cetera.
One of the challenges. Let's cover the good part first. So the good part is, hey, the client's assets are already at Charles Schwab. The client quite literally has to sign one form basically to move their account. You don't have to get the client's Social Security number, their date of birth, their bank account information, their spouse's Social Security number, their. Any of that stuff. Probably quite literally. The hardest part is you've got to get the client's account numbers, okay, because you're not able to take that information, of course. So you got to get the client's account numbers from the custodian and then the client's got to sign. At Schwab, it's what's called an lpoa. And the client signs that and magically everything moves and there's a couple other little housekeeping things that need to happen. But by and large, that's pretty much it. So.
[00:08:56] Speaker A: So probably though, if you, if your employer, your RA employer made you sign non solicits and things like that to try to make it difficult to do this, you still are going to need to abide by the contract that you sign. So there's a good chance that you can't take any client information with you. You can't take people's phone numbers and emails, etc. But how it's different, and we'll talk about this in a second, but how it's different than a normal breakaway from your BD or your broker, dealer, employer is that in this world the client's assets can stay at the same custodian. Right? That's the big overarching difference when you're doing something like this is you're not having to have those conversations of, hey, I know you're at ameriprise or EJ or RJ or wherever you're currently at. And I'm like, I'm doing this. And now your money is going to be held at Charles Schwab. It's a much. That's just one less thing you gotta. One less hurdle you gotta jump is the client's money literally doesn't move and the account numbers stay the same. It's like a magical, like I'm still.
[00:10:08] Speaker B: The same 1099, same. The same account number, same investments. So.
[00:10:12] Speaker A: So. And since you were running them already, presumably the feeling from the client is, hey, quite literally nothing's changing except the logo at the top of the statement's Going to have that person's new firm instead of the RA firm they were with.
But other than that, it should, it's.
[00:10:34] Speaker B: Minimal disruption to the client.
[00:10:35] Speaker A: Yeah. Which you would think. I would think at first blush, that's a good thing, right?
[00:10:40] Speaker B: Yeah, exactly. You would think. And it is certainly in terms of just the actual paperwork, there's maybe a little bit less chaos to the whole process. Would be a fair statement.
But I also think if you look at it on the other side of the coin, okay, you're the client. Okay, let's say you're the client. You get a phone call from your financial advisor that says, hey, great making your announcement call. Right. I left my firm, started my own firm. Do you have any questions? What's different? Nothing's different. So at the end of the day, you are truly 100% putting the relationship on the line. It is truly like there is nothing.
[00:11:25] Speaker A: So for the most part, let's compare that just for the advisor that hasn't made these phone calls that, that we've all made.
Typically, if a client, if you are leaving the broker dealer world and going ria, the client might ask what's different? And you might say, in this world, I'm a full time fiduciary, right? 100 full time fiduciary. I have to legally put your best interest first. That's a differentiator, right? That's different. You're gonna get, you're gonna get different and more investment choices in this world than what's on the curated menu at wherever you're at. You're gonna get tax planning and tax preparation. If you're like us and we have a CPA business attached to our ra. So you've got these different things of different arrows in your quiver, so to speak.
[00:12:26] Speaker B: And again, I want to make sure I'm point one thing out, right? You're not telling the client this unless they ask you what's different 100%.
[00:12:34] Speaker A: You're just answering their questions.
[00:12:35] Speaker B: You're not soliciting them and saying, let me tell you how great it's going to be. Right. It's just more of this to maybe.
[00:12:40] Speaker A: Caveat it even more. These are just things of why you're doing it.
[00:12:44] Speaker B: Exactly.
[00:12:44] Speaker A: Whether you tell the client these things or not, this is the arrows in.
[00:12:48] Speaker B: Your quiver of these are the reasons why I'm doing this because I want to be able to deliver this to my future clients, not to you. I'm not asking you, I'm. I'm telling you these are the reasons why I left so that I could deliver this because I think it's going to help my business grow. Right. And so anyway, sorry, go ahead.
[00:13:05] Speaker A: So the idea of you're, you're having these conversations with your clients and you've got these different, I like to call them arrows in your quiver and whatever they might be, and some are typical to the RAA industry or like, specific to the RA industry, and others are maybe specific to you and how you, your belief system or your whatever it might be of why you're actually doing this. That's a market difference than the RA world versus your BD world. And like, you can compare and contrast these things and the clients feel like this is a difference because you're able to talk about true differences that exist, truly.
So backing up to what Jason was saying is that in. When you break away from your RA employer, it's really hard to draw a distinction between what you're now going to be able to do from what you could do last week in the RA world still. And so what ends up happening? There's some things you can draw on leveraging different technology. There are some things, they're, they're a little bit less concrete or like true value added to the client in a way that they feel like, hey, this is markedly different because you can tell somebody, oh, the technology is different. But it's, Those are very ethereal things in some ways. So the idea of leaving the, like you're on those phone calls with the client, it's hard to pinpoint true differences. So instead what you're left with doing is really leveraging the relationship you have with them to say, look, I'm leaving. And you're, I really want you to move only because you love me. Which is no different than the bd. When you leave the broker dealer world and you have these conversations in your heart, you're like, I want you to leave because you love me. But also, did I mention that there's these other great things that come along with joining me? So that's why it's a. It can be a little bit, I would argue, like a little bit harder on the actual transitioning people and getting them moved over because you're really leveraging just the relationship.
But on the front end, when you're the advisor thinking, surely this has got to be simple because they only have to sign one piece of paper and the money stays where it's at, how could this possibly be difficult?
[00:15:45] Speaker B: I think it's probably fair to say that the conversations are more difficult. Right? The conversations are more Difficult, but the administrative part of it is easier. The money moves faster, it's less dramatic for the client easier. And really for those that do choose to follow you, it's easier transition certainly than repapering. So there are some things about it that are easier and then there are many things about it that I think you and I agree are, are definitely more challenging and harder for somebody to be able to see.
[00:16:20] Speaker A: So what's gonna, what's really nice about this though is that even more so than leaving the breakaway or leaving the broker dealer space is that these people truly love you. Right? They're like, they are advocates for you. And because there's not this ancillary, hey, you're gonna get more investment choices or better tax planning and all this, you're just really leveraging. They really love you. So that's got to be, that's got to feel great when you move that person over because there wasn't anything but, but really just but you and them and they see value in that. And so that's going to help you. Again, back to our previous podcast, that's going to really help you launch your business and grow it to and have this momentum because people are going to be raving fans. It's not going to take very long for them to leave really good Google reviews and things like that because they really love you. And so I think it's an interesting niche that we found ourselves in where we've got these employees of raas that are like, hey, I want to do my own thing, but I have seen the RA world and I really know what I don't want to do, which is the compliance and the billing and all the stuff that is required to run an ra. They've actually seen a little bit of behind the curtains of what it takes to actually do it from a running the ra. And they don't want to do that. They want to just be able to own their clients and plug in to a platform that does all that stuff for them and helps them really leverage themselves to grow. And so we've found ourselves in this interesting niche helping breakaways from captive broker dealers and the RA channel, which is great.
[00:18:12] Speaker B: Yeah. So if you're listening to this podcast and you're thinking to yourself, oh, these uptick guys are great, but they don't help Ria breakaways. Not so fast, my friend. We do new business model.
[00:18:23] Speaker A: Not so fast, my friend. Yeah, so yeah, I. It'll be interesting. I mean, our first one was February in Little Rock and it's been an interesting it's been an interesting to sit and watch how the, how successful he's been and how excited we are for him to be able to leverage a little bit of a different platform than what he was getting at his RIA and in different technology and our tax practice to be able to really add tremendous value to his clients that already love him and potentially go and somewhat go up market in a way where you're now able to offer people that want that one stop shop and want the tax planning and tax prep brought in house for him to go out there and try to figure out and partner with the CPA and kind of like, how do I do this? How do I make it compliant? How do I want to do this for clients? Because this is what they want. But how do I do this? It's just in the uptick world you join uptick and how you do it is you just raise your hand and say, I want to offer this to my clients. And then magically we start, we have our CPAs start to have conversations and meetings with your clients. Right. If that's of interest to you. If you like that idea of moving your business to be a little bit stickier to clients, to have more of a holistic one stop shop for people to be able to get most of what they need done from a tax planning and prep and obviously the wealth management side and the estate planning side, that's what we want to offer our platform partners that the partner firms that want to come up underneath us and leverage this stuff that we've already built. If that sounds good to you, like we might be a good fit because that's truly how we're different than most other RA rollups out there.
[00:20:17] Speaker B: Exactly. Yeah. I think that's maybe the final thought is, and we probably need to do a separate podcast on this is just like how do I if I'm going to be a good fit for us, besides just personality types and things like that. But I think it's just this idea of you are you're wanting to grow, you're wanting to grow, or you're wanting to get your business in a place that it is optimized to sell it one or the other. We have people on both sides of the coin there that say, hey, I maybe not really wanting to grow, but I want to get things really humming and really efficient so that I can just plug somebody in and have it be like optimal everything. And so either that or the 30 year old that says I'm trying to go from 100 million to 300 million. Right. And what do I need to do? You need to offer your clients more investments. You need to be a fiduciary, and you need to try to offer them to do their tax return. Right. And those three things, you will go from 100 million to 300 million if you work hard.
[00:21:19] Speaker A: Yep. So, all right, that's a wrap. Thank you for listening. We hope you enjoyed the podcast. Please subscribe to our channel. You can find more of our episodes on YouTube, Spotify and Apple Podcasts. And check us out at uptickpartners.com where you can learn more about how we help breakaway advisors just like yourself find independence.
