When opportunities beckon, we often find ourselves faced with difficult choices. If you’re thinking about becoming an independent advisor, you’re dealing with one of the biggest planning decisions you’ll ever make for yourself. Although weighing the pros and cons may seem overwhelming, answering one question could be the key: do you want to be a business owner?
Below, we explore what ownership control could look like for you, as well as the associated considerations that should play into your choice to take—or not take—the independent path.
Controlling Your Business
Pros. First and foremost, as an independent advisor, you’ll be building a business for yourself—not the wirehouse. As an entrepreneur, you can choose the business model that makes the most sense for your clients, with a custom fee schedule that compensates you appropriately for your time and expertise.
Attractive opportunities include starting a solo practice, joining an existing independent firm, or building an enterprise. You can choose to practice as a dual registrant who combines both commission- and fee-based business or as a fee-only advisor under a partner firm’s corporate RIA or your own newly established RIA.
Even better, your initial choice doesn’t lock you in. As your clients’ needs and your business evolve, you’re free to adjust your approach. Want to follow our industry’s flourishing trend toward financial planning rather than product-focused services? That choice, like many others, will be open to you.
Cons. If you leave the wirehouse, you’ll give up the name recognition of a well-established regional or national firm. That’s no small loss, especially when you’re just starting out. Plus, you’ll have to deal with setting up and maintaining an operational infrastructure, establishing a service menu and fee schedules, and creating office policies.
Still, if you’re thinking about breaking away to gain control, you might find establishing your own business structure brings a sense of fulfillment along with the challenges. Furthermore, as an independent, you can gain robust, ongoing back-office support by choosing the right firm partner.
Choosing and Working with Clients
Pros. As a business owner, you choose which clients you want to work with. Don’t want to set an investable assets minimum? You don’t have to, though you should keep in mind that capacity and scalability can become an issue if you don’t. When relying on your own guidelines, you’ll be able to take on promising clients such as HENRYs (high earners, not rich yet) and the go-getter children of boomer clients.
This all adds up to great potential. Because when you establish your own terms and build the experience you want your clients to have, they’ll know you’re dedicated to their needs, not the needs of the wirehouse.
Cons. You might be wondering whether it’s smart to give up your access to a roster of wealthy clients, such as you likely enjoy with the wirehouse. If you break away and set up your own firm, will your clients follow you? This outcome isn’t guaranteed.
For an independent, finding new clients is an ongoing marketing challenge—one that takes time and energy. You’ll have to manage your client base carefully to ensure that you receive appropriate compensation for your time and expertise.
Setting Up and Running an Office
Pros. When you’re in charge, you have control over your office environment. Will you decide to rent space in an office park or a local historic home or, given the ongoing pandemic, start off by working out of your home? What hours will you keep? You run the show, so there’s no need to punch a clock.
These are just some of the decisions you’ll get to make. Consider also that you’ll be able to choose your support staff, technology platforms, marketing budget, and more. You won’t need to ask for anyone else’s approval before making decisions.
Cons. Setting up and running an office may be one of the biggest fears advisors have about going independent. When you work for a wirehouse, most of this process is out of sight, out of mind. On your own, unless you work from home, you’ll have to find and lease office space. Purchasing computers and supplies will be necessary, as will consultations with IT and security experts.
All in all, start-up costs can be considerable. And there will be ongoing payments for rent, utilities, research and planning software, and staff salaries and benefits. You’ll need a detailed road map to plan for and control these expenses.
Selecting and Managing Investments
Pros. As a business owner, you’ll have discretionary control over the management of your clients’ investments. Regardless of the partner firm you affiliate with, you’ll likely enjoy access to an open architecture platform that frees you from production quotas. And the pressure to use proprietary products and services offered by the wirehouse? You can say goodbye to that, too.
Instead, you can identify the most appropriate options for your clients from a plentiful universe of investment solutions. This opportunity will let you tailor choices more closely to client needs, enabling a new decision-making transparency. Clients should appreciate this change, which will help you deepen relationships and improve retention.
Cons. If you break away, you’ll give up the investment research and product resources that a big wirehouse offers. Performing due diligence can be time consuming when you don’t have a whole staff of analysts ready to recommend investments and products.
Sometimes, the sheer number of options that become available to you as an independent can be an obstacle to finding the right investment solutions. The good news is that most of the firms you’ll explore partnering with have analysts and other planning specialists on staff who will be available to consult with you on client cases.
Do You Want to Be a Business Owner?
Ultimately, the decision as to whether breaking away is the right choice depends on your answer to this question. If your answer is yes, there’s exciting work to be done. In addition to a plan for starting up your business, you’ll need a strategy for identifying and telling your brand story. Creating a clear identity for your new firm is the first step to attracting ideal clients and building long-term profitability.
Decide If Independence Is Right for You
Take a quiz, watch a video, and access other resources to find out if now is the right time to break away.
