Benefits of Equity Model Partnerships for RIAs

Part of growing a successful advisory business means making the strategic decisions necessary to advance your goals. One avenue you could consider is shared ownership in the business through an equity partnership model. Moving to an equity partner structure can offer some distinct advantages for scaling an RIA, which we’ll review below.

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Understanding the Equity Partnership Model

Equity partners own a stake in a business and play a role in its management. For financial advisors, a key benefit of the equity model is its adaptability. There are multiple ways to implement an equity partnership approach to suit your firm’s needs and goals.

For instance, your equity model may involve onboarding one or more associate advisors who will share a piece of the business. As equity owners, those associates also share in the firm’s profits (and losses).

RIA aggregators offer another avenue for pursuing an equity partnership model. Aggregators purchase equity in existing RIAs and provide their owners with the support and resources they need to scale.

Whether you choose to expand your team, extend equity ownership to current staff members or enter a strategic partnership with an aggregator, the equity model can help you grow your business. All without shouldering the weight alone.

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Benefits of the Equity Partnership Model

Equity partnerships can benefit advisors in numerous ways. Here are some of the most notable advantages of adopting an equity model.

Hiring and retention. Finding top-tier talent can be challenging. But an equity model could give you a competitive edge when it comes to hiring and retaining employees. Jobseekers may be attracted by the prospect of leveraging an ownership stake in a growing RIA as they work to build a successful career.
Succession planning. At some point, you may want to step away from the RIA you’ve built. But you also want to ensure that it’s left in good hands when that time comes. An equity partnership model can create a smoother path for succession if you have one or more individuals with a vested interest in what happens to the business in the long term.
Shared resources and decision-making. Working with one or more equity partners allows you to tap into their knowledge and expertise, which can help you grow as an advisor. These individuals can also be a sounding board to bounce ideas off of as you shape your business’s future.
Attract new clients. Adding to your team could also help you add to your book of business and increase revenues. You could develop new service offerings that align with your equity partners’ expertise, expanding your niche and attracting new clients.
Shared risk. Growing an RIA isn’t always a straight path; there are ups and downs, twists and turns. Working with equity partners means you don’t have to face the risks alone. And if you do experience a setback, you can work toward a solution together.

RIA aggregators can offer some additional benefits if you prefer this type of equity partnership model vs. hiring new advisors to join your firm or offering your existing staff an ownership stake.

For instance, an aggregator can provide support and access to tech tools and other resources you need to grow your business. You may also get the benefit of operating under an established brand, which could make it easier to attract clients.

Implementing an Equity Model

An advisor researches equity partnerships as a way to grow an advisory firm.

Equity partnerships can be a promising way to grow your advisory firm. If you’re considering this option, it’s important to give some thought to how you’ll do it. Ultimately, it comes down to your business’s needs and goals.

If you’d like to keep ownership of the business in-house, for example, it could make sense to either bring in new advisors to join your team as part-owners or extend equity ownership to your existing staff. You may prefer this option if you already have one or more individuals in mind that you’d like to share the reins with. Or if you have a specific vision about what your firm’s succession plan should look like.

In this scenario, you’ll need to decide:

How many equity partners you want to add
Whether those partners will come from within the business or without
How equity should be distributed among partners
What kind of decision-making powers and level of control each partner will have

Working with an aggregator means you don’t have to go looking for talent to join your team. Instead, you join the aggregator’s team as an advisor partner.

If you’re considering an aggregator model, research the options carefully. Compare how different aggregators structure ownership agreements with the advisors they work with, the type of support offered and the tech tools you’ll have access to. Also be sure to assess the brand’s overall visibility in the advisory space.

Why does that matter? Among affluent investors who currently have an advisor, 39% say they prefer to work with a professional who’s affiliated with a large national brand, according to research from Cerulli Associates. That’s something to keep in mind as you decide which aggregator to work with.

Frequently Asked Questions

What Is the Equity Partner Business Model?

The equity partnership model encourages shared ownership in a business’s profits and losses. Equity partners also share in decision-making and guiding the business’s future.

Is an Equity Partnership Worth It?

Adopting an equity partnership structure could be worth it if you’d like to share ownership of your business with one or more individuals. Having equity partners on your side can make challenges feel less daunting. Plus, you also get the benefit of their expertise and knowledge.

What Does an RIA Aggregator Do?

RIA aggregators purchase or invest in RIAs to help them grow. An RIA aggregator can provide you with the tools and resources you need to scale, without having to be fully independent.

Bottom Line

Advisors outline how an equity partnership model would work.

The equity partnership model has plenty of advantages, though it may not be right for every RIA. Weighing the advantages and the specific benefits your firm might enjoy can help you decide if this type of ownership structure is the right move.

Tips for Growing Your Advisory Business

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Adopting an equity partnership model may affect your tax filing. Before moving ahead, you might want to consult with a certified public accountant (CPA) or another tax professional to understand the possible implications for your business.