Getting started as a financial advisor has many challenges. Building a viable book of business that will sustain your income, along with establishing your reputation as a qualified professional are not easy tasks. Couple these with the operating and overhead expenses that go along with running a business, including office space, payroll for any support staff, insurance and marketing, and it’s easy to see why so many financial advisors start their careers at a large wirehouse or regional broker dealer.
But after years of hard work pay off in knowledge, experience and an established book of business, many advisors begin considering the benefits of setting off on their own as an independent advisor. After all, what’s better than being your own boss while keeping a larger piece of the pie?
If you find yourself in this position, weighing the pros and cons of going independent but unsure of all the considerations that need to be made, this article details the thought process advisors should undertake when becoming independent.
Conduct a financial analysis and consider all available assets
The first step is to take a closer look at exactly how much of the money you generate ends up in your pocket. What is the true payout percentage (including production haircuts, platform fees, affiliation and/or technology fees) that your current employer offers compared to what an independent firm would pay? You should also assess what tools are made available to you to help you grow your practice at the new firm. Consider any available branding strategies that will help you promote your practice versus those available with your current employer. Understanding the exact financial benefit to going independent, including growing your practice’s equity and all the tools that will be available to help you succeed, will assist your decision-making process in determining the right transition.
Determine your priorities
There are many different options to choose from when going independent, so make sure the one you select aligns with your priorities. Do you wish to have more autonomy and control over the way you work for your clients? Are you looking for a more stable environment where the firm won’t change hands every few years forcing a mass repapering of your accounts? What services and technologies are you looking for in a new independent relationship? Identifying the most important reasons you have for striking off on your own will help you land in the right place.
Figure out who’s coming with you
Taking a deep dive through your existing client relationships to determine, realistically, how sticky your current relationships are is vital in understanding the economic feasibility of the transition.
There are many details that need to be planned prior to making any change. For example, where do you plan to work? Will you be working from your home office, or do you need to find some office space?
Also, think about the best way to alert your firm that you are leaving, know ahead of time exactly what you can take with you, and have a predetermined way to contact your clients about your move to ensure there will be no infractions with broker protocol.
Making the switch
L.M. Kohn has been helping advisors make transitions to independent work for over 30 years. We know all the details of what needs to be considered to set you up for success. For more information, please contact us.