Almost every financial advisor contemplates whether or not to break away from a traditional wirehouse or brokerage firm and establish an independent advisory practice. In this three-part series, we hope to help advisors make the best decision for their business and clients. This first installment reviews the primary concerns about whether independence is right for you: access to client solutions, simplicity in day-to-day business and compensation earned by you, the advisor.
ACCESS TO CLIENT SOLUTIONS
Have you asked yourself: Do I have the best financial solutions across all investment, life insurance, and annuity spectrums to use with my clients where I am today? If you leave, will you have access to the premier solutions available to best serve your clients?
A key issue that keeps advisors from going independent is the myth that they will have fewer options to offer. This couldn’t be further from the truth. Independent advisors have great flexibility to create and implement plans for their clients, giving them access to open architecture platforms spanning every dimension of financial service. Recognize that there are options available outside of traditional models, that there is no need to accept the status quo with their conflicts of interest, soft-dollars and proprietary products.
DAY-TO-DAY BUSINESS
Ask yourself:
1) “Am I spending my time on bureaucracy or is my environment conducive to focusing my time on growing and servicing my practice?”
2) “If I leave, will I really have more time to focus on growth and service or will working alone leave me more burdened?”
The fact is, it can be tough to grow your book and service your clients in a traditional broker-dealer world. From operational logistics to bureaucratic inefficiencies, the day-to-day mandates and institutional oversight often feels like a burden. Seemingly straightforward actions, such as opening accounts, funding and trading, can be challenging. More ambitious moves, such as marketing campaigns, handling client events and other OBAs, can fall by the wayside as you navigate compliance and suitability while keeping abreast of the ever-evolving regulatory environment.
As an independent IAR or RIA you are simultaneously bound and freed by your fiduciary obligation. You can unlock efficiencies from marketing to day-to-day service, enabling you to use your best judgement. If you’re looking to truly spend your time working with clients, the growing number of boutique back-offices and premier service providers can provide outsourcing solutions. Shedding the minutia from your daily grind can also free up valuable personal time for family or for pursuing personal passions. A truly independent RIA is often the best model for a simplified, multidimensional, client-focused practice.
REAP WHAT YOU SOW
Have you asked yourself:
1) “Is my take-home compensation aligned with my daily efforts and will I be compensated for what I have built over my career?”
2) “Can I make more with what I have currently, and can I actually build that into a brighter future?”
Many advisors find that their compensation is compressed relative to their independent contemporaries. This dynamic is a source of frustration to many, who in the past looked to the stability of their established brand as a source of new business and support. In this post-financial-crisis America, this curb appeal may no longer be enough to overcome these frustrations. Most independents also enjoy much lower annual costs of doing business. After all, big firms with big infrastructure need a bigger share of the revenue you create.
Advisors are also increasingly looking for better succession planning opportunities, whether in the near term or distant future, because fair market value is typically substantially higher than the retirement packages most firms extend to their senior advisors. As an independent, especially in today’s seller’s market, you have the flexibility to design the best deal for you while also ensuring your clients continue to receive your caliber of service.
Economics matter, but purpose matters most. Just ask yourself, “is my firm helping me achieve my long-term goals and those of my clients?” If the answer is “yes,” and none of the characterizations above describe your own feelings, then transitioning to independence may not be a viable or appealing option. If your answer is “no,” or if any of the characterizations above struck a nerve, you probably already suspect you have to make a change.
Part 2 and Part 3 of this series will run Feb. 18 and Feb. 22, respectively.
Ron Briggs is CEO of Entry Point Advisor Network (EPAN). Jasnik Parmar is president. EPAN provides comprehensive support services to independent advisors and agents across the financial services industry.
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