10 Lessons You'll Learn in the First Year of Running Your RIA

So, you’re doing it. You’ve decided to quit your 9-5 job and jump feet first into the world of entrepreneurship. Congratulations!

For some people, this decision brings nothing but excitement. But for a lot of XYPN members who are just joining the Network, the idea of what lies ahead in their first year brings excitement tempered with uncertainty. Becoming your own boss comes with so much freedom—and so much responsibility.

As a Member Experience Specialist at XYPN, there are many facets to my job, but one constant is I talk to our members. A LOT. At this point, I’ve had one-on-one conversations with more than 400 XYPN advisors over the past year. During these conversations, we discuss their wins, their losses, their businesses, and their lives. We talk about where they’ve been, where they’re headed, and what they’ve learned along the way.

For a period of six months, I talked to every new advisor who joined the Network before many of them had even started the registration process and officially become firm owners. I talked with them quarterly over their first year. Every three months, their concerns, struggles, and wins changed wildly. I got to witness the evolution from brand-new prospective entrepreneur to full-on business owner.

Around this time of year, a lot of conversations with that group of members has revolved around their first year in review and lessons they’ve learned. Some advisors ended their first year with a starkly different mindset than when they first began. Many learned small lessons along the way that slowly steered them in the direction they’re headed today.

Each of the below lessons is something I’ve learned from an XYPN member’s own experience. I hope you find these lessons valuable as you contemplate the journey ahead.

Lesson #1: You Can’t (and Shouldn’t) be Everything to Everyone

When advisors first launch their firms, they usually have one primary concern: getting clients.

Where are they? How can I reach them? And how can I get them to pay me?!

For some, without the security of a reliable paycheck, they feel pressured to take on any prospect that comes their way. Of course, you need money as you work to get your feet under you, and yes, it feels pretty darn good to have clients who want to work with you. But when taking on that prospect who isn’t truly a fit and who requires much more time and effort than your fee affords, then that prospective client deserves a second look.

Advisors in our Network who are in years three, four, or five of business sometimes struggle with their need to fire clients. Taking on a large number of clients that you can’t sustainably service for the price you’re charging them, or the time it takes to service them, is a recipe for discontent. You can avoid this by setting a fair fee structure for yourself from the beginning and clearly identifying your ideal client.

Your Value Proposition and Ideal Client

If you listen to #XYPNRadio at all, you know one thing: we love niches. And there’s good reason for it. Being a specialist versus a generalist makes communicating your value proposition easier.

When you can identify who you want to work with (whether that’s female doctors or Silicon Valley tech startups), you can more easily refine your focus, develop an effective marketing strategy, and hone your skills.

It’s feasible to specialize in the employee benefits for Amazon employees in Seattle. It may not necessarily be feasible to become an expert in the employee benefits of 15-20 different companies.  Prospective financial planning clients most commonly search our Find an Advisor portal by niche/specialty, not location. People want advisors who understand them and their unique needs. In today's digital age, geography is no longer a limiting factor. People care more about your unique value proposition than your address.  

Having a clearly defined and articulated value proposition from the start isn’t just the key to selling yourself to clients—it’s the key to attracting the clients you want to work with. New firm owners in the Network participate in our Start My Firm course with our in-house business coach, Arlene Moss. Through Start My Firm, new firm owners have the opportunity to identify potential niches with the help of a professional. 

Clearly identifying who you want to work with and clearly communicating your value to that specific group of people is at the heart of effective sales and marketing. The better you can explain the value you can bring a prospective client and the ways in which you can solve their pain points and help them achieve their goals, the more they’ll want to work with you.

Your Fee Structure

So you found some prospective clients you want to work with, and who want to work with you.  Awesome! But is it possible to keep your business afloat with what you’ll be charging them?

How to profitably price your financial planning services is a constant point of discussion in our member forums. For many, answering the question “How much is my time really worth?” is nothing short of a challenge.

In your first year, you should start by deciding your hourly rate. First, try to quantify how much time you would spend with a client in a year. If you have past experience working with clients at other RIAs or broker-dealers, that’s a great place to start. That includes time communicating with clients over the phone, by email, or in meetings, as well as time developing their financial plans or managing their money.

Once you have that number of hours per year, you can use the aspirational salary that Brandon Moss talks about in this blog. This would likely be the income you’ll need in your first year. While your initial salary may seem too high when you’re doing this exercise before you even have an established firm, remember that you’re building towards something. If this is a long-term business for you, then build for the long-term.

Once you have your hourly rate, you can adjust for how you’d like to charge your clients—monthly, quarterly, a flat fee, etc…

Overall, having confidence in your own value by charging appropriately for your time from the beginning will set you on a path to success.

Lesson #2: Things Don’t Have to be Perfect to Start

It’s easy to convince yourself that you aren’t ready to launch. There will always be something—like that small voice in the back of your head—trying to trick you into thinking you aren’t ready.

So this piece of advice is simple: just start.

Many of our advisors get their registration approval with their state but take months to “officially” launch. They want to have the website perfect, seamless, repeatable processes in place, and a marketing funnel that will convert prospects into clients like magic. The problem is so much of what you establish in the first year will change.

XYPN’s 2018 Benchmarking Study showed that 100% of our advisors adjusted their fee schedule from when they first began. 100%!

While you should take some time to come up with a fair charge for your services, you should know that it’s going to be a continual work in progress. It took members Danna Jacobs and Rob Colon around three years to come up with a process and fee schedule they felt proud of. Rome wasn’t built in a day, and a perfect RIA certainly isn’t built in a year.

Things will change, and the only way you can learn what you want to change is by doing. As Mark McCarron calls this the “Do Something” principle in his book The Subtle Art of Not Giving a F*ck. He quotes his high school math teacher who used to say, “If you’re stuck on a problem, don’t just sit there and think about it; just start working on it….the simple act of working on it will eventually cause the right answers to show up in your head.”

Take finding your niche as an example. Instead of agonizing over the choice for a year, you pick a niche, make your website sing to that demographic, and gather some clients who are the ideal fit. You may start working with those types of clients and, lo and behold, not like it. And that’s okay! Your action led to a discovery that will move your firm in the right direction. 

Our co-founder and CEO, Alan Moore, founded his firm Serenity Financial Planning with the goal of serving divorcing clients. He pursued the CDFA designation and got a half dozen clients or so. Things were exactly what he envisioned. But if you ask him about his experience working with these clients he intentionally sought out, he’ll be the first to tell you that he hated working with those clients. For him, the work was not energizing or exciting but rather extremely taxing. So, he changed his niche. He stopped working with those types of clients. He evolved. 

One of the most important traits of an entrepreneur is flexibility. Things that work when you only have one client might not work when you have ten. Don’t experience failure to launch just because your client onboarding checklist isn’t perfected yet. You’ll figure it out along the way, and your firm will grow and change as you do. Perfection is the death of innovation. Strive for innovation, not perfection, in your first year. 

Lesson #3: You’ll Likely Need More Than $10,000 to Start an RIA

In 2013, XYPN member Sophia Bera authored a hugely successful (and frequently cited) article on Kitces.com. ln the blog, she talks about how she started her RIA for under $10,000. Sophia has a lot of great advice and really dives deep into her own personal experience. But we’ve found among XYPN members that while $10,000 is a doable goal and budget for the first year for some, for many XYPN members, this simply isn’t attainable.

XYPN membership does drastically decrease many of the costs for technology and initial state registration services, and $10,000 may be perfectly adequate for some members. As a general rule, our sales team encourages any prospective member to have 2-3 years of expenses in the bank, but what are those expected expenses? 

When determining your expenses and first-year budget, some important factors are:

1. Do you have a partner who can support you financially?
2. Do you have a side hustle or additional income?
3. How much do you plan to outsource?
4. How many higher cost firm tools (Orion, eMoney, etc) will you invest in?
5. Where are you located and what’s the cost of living? 

The answers to these questions will drastically affect the financial runway you need to set aside before launching your firm. To help show the variety of options, our free First-Year Budget Templates highlight the first-year costs for three different XYPN members at $10,000, $30,000, and even $50,000.

Lesson #4: You Don’t Have to Do It All

Any entrepreneur/business owner has to wear so many different hats to run a business successfully. You have to have at the very least a basic understanding of marketing, sales, client engagement, bookkeeping, operations, and more. Add all of that to the specific challenges of running an RIA, such as creating financial plans, managing your clients’ money, and serving as your Chief Compliance Officer and you have a heckuva lot to juggle.

Keeping your expenses manageable in the first year is critical. Many first-year RIA owners have plenty of time to spare but limited money to spend. But there will come a day when that shifts and you have money to spend, but not time to spare. That’s why it’s important be acutely aware of where you spend your time in your first year to inform decisions you make later about outsourcing.

Not many advisors are in a position to make a full- or part-time hire their first year, but below are some common tasks members outsource in the first year:

#1. Bookkeeping

Bookkeeping is one of the first things we find advisors outsourcing, and for most, this is a great choice. Bookkeeping is a dangerous mixture—it’s time consuming and essential but non-revenue generating. In other words, the time you spend balancing your books doesn’t equate to more clients or profit for you and your RIA. Offloading your books to a service like FA Bean Counters can free up more of your time to spend on revenue-generating tasks.

#2. Web Design

A website is one of the biggest reasons I see advisors experiencing the previously referenced “failure to launch”. In order to save money, they created their own website through Wordpress or Wix, but quickly found that creating a beautiful website isn’t that easy. Using a service like Twenty Over Ten or hiring a graphic or web designer to build your website for you can be expensive, but the time you waste by not launching and marketing yourself to the world—and the low likelihood of you building the website to its maximum potential—make this one item that is frequently outsourced in the first year.

#3. Investment Management

Not everyone is good at everything. Some of our members’ eyes light up when they’re talking about investment strategies. Others want to spend more of their time with their clients working on developing financial plans. Using a TAMP like XY Investment Solutions (XYIS) can enable you to do this in your first year. With the help of XYIS, you can take investment management completely off your plate, including the time-wasting (and infuriating) tasks like dealing with TD Ameritrade NIGOs.

Again, while not all outsourcing may be feasible early on, keeping track of how much time you spend on each activity will make it easy to know which tasks to outsource first when you have the money to do so. And remember, even if you manage all of these tasks on your own in the first year, you don’t have to forever.

Lesson #5: Compliance is Manageable

From talking with Stacey and Lindsey on our Sales Team, I know that compliance is one of the biggest apprehensions for advisors joining the Network. When coming from the broker-dealer world, advisors develop a mixture of fear and lack of knowledge of compliance. “The Chief Compliance Officer is a person who tells you that you can’t tweet certain things...now I have to be a CCO for myself?” 

That general fear of compliance continues long after our in-house Compliance Team helps members with their initial registration. The threat of a looming audit and general lack of compliance knowledge of most advisors immediately post-launch is frequently cited as one of the most difficult parts of running their business. I always joke with members that it seems like keeping up with their compliance is always on their to-do list, but it never tops the list of items they should complete daily.

Now don’t get me wrong, taking on the role of Chief Compliance Officer of your firm is no small undertaking. But ongoing compliance shouldn’t keep you up at night or fill you with existential dread. Most advisors find that it’s a manageable part of their firm’s operations by the end of their first year.

I’ve seen advisors learn how to handle their ongoing compliance in a few ways: XYPN resources and support, creating a compliance schedule and calendar, and by establishing communication with your state regulator. 

XYPN Resources and Support

Our main goal for our XYPN members is to empower you in your role as CCO. While we won’t complete general compliance tasks for you (outside of your annual ADV update and premium services as requested), we provide ongoing education, resources, and tools to enable you to confidently do so.

To learn what you don’t know about compliance, we’ve built out a compliance school in XYPN Academy, our proprietary education platform for members. You can watch videos on everything from what being your own CCO means, to a walk-through of filing an ADV update in FINRA, to what the role and importance of each of your compliance documents is. Additionally, our Compliance Team hosts monthly compliance webinars for members on a variety of topics.

Once you feel more comfortable with compliance as a whole, you’ll likely have questions that pop up periodically. For that reason, we host weekly compliance Office Hours. Have a client situation that you want to talk through? You can drop in once a week on Wednesdays and meet face-to-face with a compliance specialist about your problems or questions. 

Creating a Compliance Calendar and Schedule

You’ve watched the videos and asked some questions about compliance, but how do you keep track of everything you’re supposed to do monthly, quarterly, and yearly to stay compliant? To provide a compliance calendar and keep members up-to-date with their compliance tasks, we offer Smart RIA as part of XYPN membership. That way nothing falls through the cracks and you won’t experience that uneasy feeling of I don’t know what I don’t know.

Along with the compliance calendar, our more compliance-savvy members recommend blocking off the time you’ll use to complete your compliance tasks every month. XYPN’s Senior Compliance Consultant says that ongoing compliance management shouldn’t take more than two to three hours per month. By taking time to use Smart RIA for an hour, attend Office Hours once a month, and watch a monthly compliance webinar, most members can keep their compliance duties in check and their anxiety about compliance low.

Establishing Communication with your Regulator

As much as the advice you’ll receive in Office Hours is beneficial, so many situations can differ state to state and regulator to regulator. Our Compliance Team strongly encourages advisors to establish a relationship with their regulator early. By forming a relationship early on, you have more time to teach them who you are and what you do and will feel more comfortable approaching them with questions about your fees, ADVs, and other items when necessary.

One of members’ biggest fears with compliance, by far, is an audit. Having an existing relationship with your regulator will make the audit process much easier because they’ll already be generally familiar with what you do and won’t be a complete stranger coming into your firm to analyze it.

The authentic feedback you get on what you’re doing right and what you can do better from an audit can make your ongoing compliance management easier. You can learn what items to prioritize and you can rest easier having already been through the experience of an audit.

Lesson #6: Your Growth Won’t be Linear

“My goal is 1-2 clients/month” is a quote I’ve heard countless times. This is not a bad or unrealistic goal per se. Where advisors can fall into trouble is assuming that every single month, to meet that goal, they need 1-2 clients coming in the door.

I talked about this exact idea with a member recently, and he proclaimed adamantly that “1-2 clients/month is not a thing.” At the end of the year, you may have taken on 12-24 clients. But if you have a few months go by without securing a new client, it doesn’t mean you’re not going to be successful. It means that your experience is normal.

Client acquisition ebbs and flows. Everything from new marketing endeavors, new center of influence relationships (and referrals), and even the time of the year can all lead to more prospects in some months than others.

Outside of the monthly view, it’s important to keep in mind that your growth per year won’t be linear either. While XYPN’s 2018 Benchmarking Survey shows overall linear growth of revenue, there are real people and real advisors behind those averages and medians. Some advisors I’ve chatted with had almost no clients the first year, and 30+ the second. Others blew year one expectations out of the water but fell short of the average year two benchmarks.

What I’ve seen across the hundreds of advisors I’ve spoken with is that sometimes when growth starts, it doesn’t stop. Client referrals are still a huge (according to the benchmarking survey, one of the biggest) client source for members. These types of referrals have a snowball effect—you have to meet a certain number of clients before they can start referring you, and you have to work with them for a certain amount of time before you’re someone they’ll refer! You can’t always predict when growth will come, so (as cheesy as this sounds) believe in yourself and your value through the slower months. 

And always remember life happens. Remember to give yourself grace when needed. Having a baby, moving to a new state, experiencing a death in the family, or continuing to work part-time while launching your RIA are all real experiences that XYPN members have and all of those can understandably set you back from expected benchmarks.

There are so many advisors who say something like, “Well, I’ve been in business five years, but I’ve REALLY only been in business two years…”. Granting yourself the same understanding you’d give someone else is important for your success and mental health. 

Lesson #7: Take Time for Self-Care and Improvement

Taking time for yourself is hard. Taking time for yourself while launching a new business is even harder. 

It can seem out of the question for some new advisors to consider taking a vacation, attending a conference out of state, or even making time to continue activities they love while in the first year of their business. Any time that isn’t spent working can seem like a waste. 

I recently talked with a member whose biggest regret in their first year was not attending a family vacation because he didn’t feel like he could take time off. He was happy to tell me that he was taking a vacation that very next week. He learned that taking one week off wouldn’t have changed anything with his firm’s success and progression. In fact,  depriving himself of that experience and break was more of a setback than anything else.

Take daily exercise, for instance. For many new firm owners, it seems like they can barely grant themselves a lunch break, much less block off time for a run or gym session. Exercise is obviously a benefit to your health, but some research has shown that it’s also beneficial to business. Taking time for yourself can actually enhance your business. 

Additionally, investing the money to attend an industry conference like #XYPNLIVE or FinCon your first year can be a great reward to work towards, even though the money may seem like something that isn’t well spent since it’s not directly spent on your firm. The professional development and networking opportunities from conferences can prove invaluable.

Remember that your first year isn’t forever, and this is a marathon, not a sprint. Take the time to build a practice and a lifestyle that you can sustain. Being your own boss means your boss (that’s you!) can give you the time off to go to yoga in the morning or spend a week on the beach.

Lesson #8: You Can’t Do It Alone

Entrepreneurs are often thought of as trailblazers—the independent and kick-ass individuals among us who have the guts to start their own business. A lot of members declare with pride that they started their firm because they couldn’t work for anyone but themselves anymore.

But one thing you lose by starting your own RIA is coworkers, something a lot of advisors don’t think they would ever miss. While the idea of working alone at home can seem appealing, not having anyone to collaborate or commiserate with can wear on you. Having people around you who are doing the same thing as you and who share the same mindset and struggles as you is a part of our work that we take for granted until it’s gone. Working alone day-in and day-out can be incredibly lonely no matter how motivated or passionate are. You may have an incredibly supportive partner, spouse, or family, but they likely won’t truly understand the stresses (and successes) of your first year.

There’s a reason our members cite our XYPN community as the number one member benefit we offer, even above compliance support, access to TD Ameritrade, and technology discounts. Being able to connect with 850+ people who are all doing the same thing as you is a benefit that most advisors can’t overstate. When you have client issues or questions, a huge win, or a crappy day, you have people who understand and can offer support or advice.

Additionally, we facilitate mastermind groups that meet either weekly or biweekly. The members of your mastermind group will quickly come to feel like coworkers (the kind you actually like). They are people who know what’s going on with your firm and with whom you can share experiences, wins, and losses.

A member told me that the greatest value he’s had is being in a mastermind group with three other advisors. Through his mastermind group, he’s had a sounding board for ideas, a place to share successes, and has formed a group of real friends. While most advisors start their firms as solo-advisors, having a community can make this solo venture a lot less lonely. Just because you’ve gone independent doesn’t mean you have to go it alone.

Lesson #9: Put Failures in Perspective

Your first year in business will undoubtedly be full of ups and downs. You may develop a great sales process, start cultivating a widely-read blog, or exceed revenue goals. You also may never hear back from prospects you thought you had in the bag, sign up for services and programs that end up being a waste of money, and fail to meet goals you set for yourself.

The one thing that is inevitable is you will fail. Not at everything, but you will experience failures. There are some lessons members have shared with me to put failure in perspective in the first year.

Reframe Failures

On the very first episode of #XYPNRadio, when asked about what advice he’d give his younger self, XYPN co-founder Michael Kitces started listing a long list of failures, including failing at his insurance career and getting a job afterwards. He reflected, “I guess that’s about as failure as failure gets...I still look at them as learning steps, learning experiences, there’s almost nothing I’ve done in my career, looking back, that I regret having done or wish I’d done differently...”

This attitude toward failure is backed up by research. As Amy Edmonson noted in her Harvard Business Review article Learning from Failure, “...failure is not always bad” and “not all failures are created equal.”

As failure is inevitable, approaching it as a lesson or a learning experience can be beneficial both for your career and your mental state. Many experiences that members would have thought of as failures in the moment—a client not signing on, the realization that they hate their niche—become learning lessons upon reflection. These “failures” actually made their businesses better by requiring them to fix a problem or stop something that wasn’t working. Remember, failure isn’t the opposite of success—it’s part of it.

Share Your Wins and Losses

It can seem silly to celebrate a small win when a failure is looming large in your mind. However, taking time to both celebrate the good things that are happening and share your failures with others can help you put the failures in perspective and learn from them.

That’s why we recommend each of our mastermind groups start every meeting by sharing a win and a loss from the week. As Scott Edinger wrote in the Harvard Business Review, those who don’t talk to others about their mistakes or failures can actually cause that failure to derail their future progress.

By sharing your experience with others, you’re more able to gain the perspective you need to find where you went wrong and come up with actionable steps for the future.

Keep Benchmarks in Mind

A lot of members share their first-year “failures” with me only to quickly realize (by me telling them) that what they thought was a failure was actually a success, like “only” getting 20 clients in their first year. So many members have no idea what to expect and no perspective on what’s normal, and as a result, they create unrealistic goals and lose out on opportunities to celebrate their success. I always encourage members to reference our Benchmarking Study results so they have a clear picture of what to expect as an RIA owner. While it’s okay to not meet every benchmark, having a realistic goal in place can prevent you from setting unattainable or unrealistic goals.

Lesson #10: It Won’t be Easy

...but it will be worth it. And if you join the XYPN community, you’ll have us (and almost 900 “coworkers”) to help you along the way!

About the Author

As a Member Experience Specialist at XYPN, Taylor Deardorff enables our members to take advantage of XYPN's ever-growing range of benefits. Through consistent communication with our growing Network, Taylor has become intimately familiar with the needs and challenges our advisors face servicing their clients and growing their RIAs. She loves XYPN's members and sharing the XYPN message.