The Order Most Advisors Get Wrong: Why You Probably Should Not Go Straight to an RIA

Spend an hour in any forum where advisors talk to each other about independence and you will find the same advice, given confidently and usually by someone who has never run the numbers at the size of the person asking.

Skip the middle. Do not bother with an independent broker-dealer. Launch your own RIA, because that is where the valuations are.

The valuations are real. They are also, almost always, somebody else's valuations, and the gap between the number being quoted and the number the questioner would actually receive is where this advice quietly falls apart.

The multiple everyone quotes belongs to a different firm

The figure that circulates is the median RIA transaction multiple, and in a strong year it lands above eleven times adjusted EBITDA. It is accurate. It describes a market in which the transacting firms are large.

Look at the same market by size and it separates into two populations that barely resemble each other. Practices below roughly $100 million in assets have been transacting at something closer to 4.5x to 7.0x seller's discretionary earnings. Platforms at $1 billion and above command 11x to 16x adjusted EBITDA.

Two things are happening there at once, and both matter. The multiple itself is far lower at small scale. And the thing being multiplied is different: below roughly $500,000 of earnings the market generally works from seller's discretionary earnings rather than EBITDA, which is a smaller base after an owner's compensation is accounted for honestly.

An advisor converting to their own RIA at $60 million is not buying an eleven-times outcome. They are buying an outcome in the first band, and they have taken on an operating company to get it.

Scale drives the number. Registration mostly does not.

This is the part the forum advice inverts.

Growing a practice from $80 million to $800 million moves it between those two populations. It changes the multiple, it changes the earnings base, and it changes which buyers will even take the meeting. Changing your registration while staying the same size moves you along a much shorter distance.

There is a real premium for being fee-only, and it is worth naming precisely rather than gesturing at. Hybrid firms, meaning those carrying an RIA alongside a broker-dealer affiliation, have been observed at roughly a 1.0x to 2.0x EBITDA turn discount to fee-only firms of similar size and growth. The driver is revenue quality and residual commission risk rather than the affiliation as such.

One to two turns is a real number. It is worth planning for. It is not worth two decades of carrying compliance, technology, vendor management and supervision yourself to avoid, particularly at a size where those costs are a large share of revenue rather than a rounding error.

The lever hiding underneath all of it

What buyers underwrite is recurring fee-based revenue. Commission and transactional revenue is discounted sharply, and that discount applies regardless of what your registration says.

Which means the most valuable thing a small practice can do for its eventual sale price has nothing to do with entity type. It is converting the revenue mix, and that work can be done from inside almost any structure. The broader framework for how practices get priced is in what is your book actually worth, and the size effect specifically is in the scale premium.

An advisor who spends five years converting a transactional book to recurring revenue and doubling assets has done more for their exit than an advisor who spent those five years running their own compliance program at the same size.

So the sequence, properly ordered

Build where you are. Early in a practice the constraint is growth, not payout. The grid is expensive and the platform is doing work you cannot yet replicate, including the brand that gets the first meeting. Leaving at $20 million to improve a payout solves the smaller problem and keeps the larger one. That argument, and the minimums that turn out not to be the real obstacle, are in can you go independent with a small book.

Own the practice at an independent broker-dealer. This is the step the forums skip and it is usually the right one. You get ownership of the book and a payout in a different universe from a captive grid, while compliance, technology and supervision stay someone else's problem. That support is worth more per dollar of revenue at $40 million than at $400 million, which is the opposite of how advisors tend to think about it. The point where that trade stops working is in the IBD ceiling.

Convert the revenue while you grow. This is the quiet compounding work, and it does more for the eventual multiple than either of the structural moves.

Go fee-only near the exit. When the assets carry the overhead, when any note has finished amortizing, and when shedding the hybrid discount shows up in a price you will actually receive rather than a hypothetical one. At that point the last turn or two is worth going and getting.

Where the bad advice comes from

It is not malice, and it is usually not even wrong for the person giving it.

Advisors who went straight to an RIA and did well are visible, articulate and happy to say so. Advisors for whom it did not work are quieter, and what happened to them rarely looks like failure from the outside. It looks like a firm that is fine: profitable enough to survive, too small to hire well, too busy to grow. The industry has a name for the endpoint, and the numbers behind it are unkind. Smaller RIAs have been losing market share to larger firms, practices commonly stall between $100 million and $300 million growing on market appreciation rather than organic wins, and operating margins at smaller RIAs reached historic lows in 2024.

Nobody posts about that, because there is nothing to announce.

The exceptions, which are real

A practice that is already fee-only, already has operational infrastructure, and has an owner who genuinely wants to run a company can go straight to their own RIA and do well. Some do.

An advisor whose current firm is actively costing them clients has a cost of staying that outweighs the sequencing argument entirely. The four paths and what each requires are compared in going independent as a financial advisor.

And an advisor near the end of their career, with scale already in hand, should be thinking about the fee-only conversion now rather than later, because for them the discount is not hypothetical. That decision sits inside the broader succession question, which is in succession without a successor.

What this means if you are deciding

The question is not which structure is best. All four are somebody's right answer.

The question is which structure is right for the size you are now, and what has to be true before the next one makes sense. That is a sequence, it has an order, and the order is not the one the forums give you.

If you want it run against your own numbers, including the cases where the answer is stay exactly where you are, that is the RIA search and launch engagement, and the process that precedes it is laid out in how to leave a wirehouse and go independent.