What Is The Real Estate Advantage Of The RIA Model?
Do you own or rent your home?
What advice do you give your clients about owning vs renting?
While there are exceptions, owning typically has far better long-term advantages over renting.
Yet, many advisors don’t practice what they preach when it comes to the real estate they use for an office.
An advisor that spends their entire career in a W2 model (ex: wirehouse), experiences the same real estate disadvantages that a life-long home renter does.
In this episode of the Transition To RIA question & answer series I explain what the real estate advantages of the RIA model are.
I'm Brad Wales with Transition To RIA (TransitionToRIA.com). This is episode #106 of my question and answer series where I answer RIA related questions I get from advisors just like you.
What I do: At Transition To RIA I help financial advisors understand everything there is to know about WHY and HOW to transition their practice to the Registered Investment Advisor (RIA) model.
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🔹 Website: https://TransitionToRIA.com/
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🔹 List of all questions I've answered: https://transitiontoria.com/videos/
🔹 Podcast: https://transitiontoria.com/podcast/
🔹 Whitepaper ("11 Ways The Economics Of The RIA Model Are Superior To Other Advisor Affiliation Options"): https://transitiontoria.com/whitepapers/
🔹 Transcription of video:
What is the real estate advantage of the RIA model? That is today's question on the Transition To RIA question & answer series. It is episode #106.
Hi, I'm Brad Wales with Transition To RIA where I help you understand everything there is to know about why and how to transition your practice to the RIA model.
If you're not already there, head to TransitionToRIA.com where you’ll find all the resources I make available to help you better understand the RIA model. This entire series is available in video format, podcast format. I have articles, I have whitepapers. All kinds of things to help you better understand the model.
Again, TransitionToRIA.com.
On today's episode, we're going to talk about the real estate advantage that comes with moving your practice into the RIA model.
You might have listened or watched many of my episodes, and maybe there's certain things you agree with or don't agree with that I say, particularly when it comes to comparing the RIA model to the W2 wirehouse model. But even if there is something along the way you might not have agreed with, it is indisputable that today’s topic is more advantageous in the RIA model than it is in the W2 wirehouse model.
This topic applies to almost any independent model in the marketplace. That includes the independent broker dealer model where you are 1099 where you are responsible for your local P&L expenses. And so, it's not just the RIA model, but it applies in most pathways into the RIA model.
And to be clear, this advice applies to almost any type of service industry. Whether a dentist, an attorney, a CPA, or whatever the case is, today's topic will still apply. But to be sure, if you are in the W2 wirehouse world and you're thinking about going to the RIA model, you will want to understand what this advantage is and how it can benefit you.
So specifically, in most pathways into the RIA model, you can own the real estate that you have your office in. Easier said than done, I get that, we're going to get into the details. But the advantage of being able to get to that point - and it might not be on your initial transition, it might be a phase two – the advantages are significant over the W2 model. That's what we're going to talk through here.
Over the balance of your career at a wirehouse, regional W2 firm - for the sake of simplicity, I'm just going to refer to wirehouse firms - over your career working for those firms, you are paying for real estate. That is part of the value your firm is providing you in return for them retaining part of your fees and commissions that you generate, the payout.
You've heard me say in several episodes, if you are in the W2 world where you have a payout, you need to calculate the inverse of that payout.
To use very simple numbers, if your payout is 40%, the inverse is 60%. Meaning you should mentally think of, because you are the one generating your fees and commissions from your clients, that 100% of that comes to you. Don't think of it as, "I get 40% of that." Think of it as, "I pay 60% of that to my firm in return for certain value that they provide for me."
To be fair, they provide you some value. They provide you an office. They provide you technology. Con't....
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