Lori Embrey enjoyed being the boss - but she hated being a business owner. "I ran my own financial planning and investment management practice for just over four years," says Embrey, now an associate vice president with Hamilton Capital Management in Columbus, Ohio. "Running an independent firm is tough. You can't just hang out a shingle and start serving clients."
Keith Somers also had his own planning firm - and many of the same concerns. "I got tired of the headaches of running a business," says Somers, who recently became an advisor with Ameri-prise Financial in Stratford, Conn. "The biggest headache was the overhead, such as renting office space. Then there were the benefits for the staff, such as providing health insurance and matching the 401(k) plan."
Neither Embrey nor Somers has to contend with such issues now that they are both employees. "Much of the stress I felt as a business owner has disappeared by now," Embrey says. "I enjoy spending my days focused on helping as many clients as possible to make the best financial decisions for their families."
UNUSUAL MOVES
The switch to employee from employer is the exception, not the rule, says Bing Waldert, a director at research firm Cerulli Associates. For 2011, for example, only 2.5% of advisors went from independent broker-dealer firms to wirehouses; just 1.7% went to regional broker-dealer firms.
Still, some planners are finding that being on someone else's payroll has its perks. "Many thought that breakaway brokers were moving on a one-way street," says Waldert, referring to advisors who leave large firms for more independence. Referring to traffic in the other direction, Waldert says "bounce-back" brokers may be returning to firms as employees.
Even planners who have proven they can run a business may simply be getting tired of it. "None of the advisors who have made such a switch recently came to us after just a couple of years on their own," says Pat O'Connell, a senior vice president at Ameriprise. "Generally, they have had their own practice for 10, 15 years or longer."
About 10% of the advisors hired by Ameriprise for its employee channel in the past 12 months were former employers themselves, according to O'Connell. Although he declines to give specific numbers, he says dozens of advisors have made the employer-to-employee switch to Ameriprise.
The main reason for such moves is fatigue. "The advisors who have become employees are looking to simplify their personal and professional lives, yet still serve clients," he says. "They no longer want all the responsibilities of running a practice."
With fewer responsibilities may come greater productivity. Somers estimates the increased support gives him 20% to 30% more time to work with his clients: "I don't have to worry about headaches at the office now."
Somers also sees his recent move as having a longer-term payoff. "The industry is going to change," he says. "Increased regulation will make it harder and harder to have your own practice. I felt that I needed more support, better marketing, a user-friendly website. "
O'Connell says most of the employers-turned-employees at Ameriprise were sole practitioners. "For sole practitioners, it can be a lonely world out there. Some want to be around other financial advisors, which they can do by joining a branch."
Indeed, Embrey says that when she ran her own firm she began to miss having other advisors to help with back-office tasks. "I missed sharing the workload of billing, compliance, research, trading, administration and IT with other professionals in the office," she says. "And I missed being able to devote large parts of my day to financial planning."
When Embrey joined Hamilton last year, she was the company's 31st employee. "I have lots of support now," she says, "so the majority of my day is spent on financial planning. I also get to spend time networking and marketing."
Beyond peer support, succession planning issues can lead an independent to sign on as an employee. "Some advisors have struggled with succession planning in the last few years," Ameriprise's O'Connell says. "We have a sunset program that can help them to realize the equity they have in their practice."
Succession planning was a driving force for Ross Richardson, who is now a planner with Abacus Planning Group in Columbia, S.C. "I made the move from my own small, solo firm, which I had run for about 10 years," he says. "The question of succession planning arose from an SEC visit a few years ago. The examiners brought it up. ... I felt some pressure in that area, but I assumed I would find someone who could take over. Time went on," he continues, "and nothing happened. I was concerned for my clients - who would serve them if I can't?"
REGISTRATION COMPLICATION
Richardson also worried about how a recent move would complicate state registration. "My firm was in Houston," he says, "and my wife was accepted in a graduate program in Michigan, so we moved to Ann Arbor. Where would my firm be domiciled, for regulatory purposes? In Michigan or Texas, or both?"
Richardson decided to give up his solo practice, which had one part-time employee, and become a full-time employee at Abacus. Now he calls himself a "virtual employee," working mainly from Michigan with periodic trips to the home office in Columbia.
"I'm the fifth person doing that for Abacus," he says. "Some people work out of Charlotte [in North Carolina], or from other locations in South Carolina." The arrangement gives Richardson considerable flexibility in his daily routine.
There are some challenges in his new role, Richardson says - such as getting used to coordinating his work with other people. There are synergies, too, as Richardson has been able to serve clients who don't meet the minimum fee requirements at Abacus.
The challenges of adapting to life as an employee pale beside those of starting out as an independent planner. When she launched her own firm, Embrey had to rent space and buy computers, other hardware and office supplies. "I bought software, software and more expensive software," she recalls, "hired interns, marketed my business and also wrote a 100-page compliance manual complete with disaster recovery and business continuity plans."
After Embrey started seeing clients, the administrative efforts continued. "Keeping up with the constantly changing regulatory requirements and filing amended ADVs took time from my client service and marketing efforts," she says. "I was audited by the state twice. Even though both reviews were successful, we had to nearly shut down for a week or two each time just to prepare for the exams."
Yes, there were upsides to owning an independent firm. "I got to choose the clients I wanted to work with and I had control over my schedule," Embrey says, "so I could set up remote offices while I was away. Everything at my firm was done my way."
VACATION SANS LAPTOP
And closing her practice was a tough decision. "I had poured so much of myself into it," she says, "and my family had made so many sacrifices that it was difficult to walk away. But I didn't walk away completely. Most of my clients made the transition with me." Now, she has colleagues as well as clients. "In April," says Embrey, "I took my first vacation in five years without my laptop. That felt really good."
Donald Jay Korn, a Financial Planning contributing writer, also contributes regularly to On Wall Street.
