8 uncensored tips for financial advisors going independent

October 12, 2021 7:34 PM

Financial advisors increasingly want to work for themselves.

Over 2015-2020, according to Fidelity Investments, nearly one in five advisors ditched their employer for a competitor, often one much smaller. Among those who bailed, nearly 40% joined a registered investment advisory (RIA) firm, either a pure one or a hybrid shop with broker-dealer services. One in four went to an independent broker-dealer. An additional 18% of all advisors considered making similar moves. “No one is staying in their lane,” wrote Bernie Clark, the head of Schwab Advisor Services, last February.

Whether the jump is to an independent shop — where advisors are held to a fiduciary standard, the wealth management industry’s highest threshold of responsibility to clients — or to a hybrid RIA with broker-dealer services, independence from big asset management companies and Wall Street brings a laundry list of things to do.

One thing often missing in that list: an actual game plan. Fewer than half of advisors who hopped possessed what Fidelity called a formal transition plan. While winging it is rarely a strategy for success, even those with a plan are daunted by the amount of paperwork involved, the time (an average 10 months, Fidelity says) needed to complete a transition and troubles with transferring clients’ investments.

There’s an avalanche of advice and marketing from consultants, “aggregators” (firms that bundle RIAs together) and add-water-and-mix “platforms” that sell technology and operations consulting services. (Think XY Planning Network’s 84 steps to launch a firm or Fidelity’s meta-look at the “five stages” of moving.)

Then there’s uncut advice from those who’ve been there. Here are rookie tips that you won’t read elsewhere:

Don’t expect that you can just flip a switch

“Many advisors think, ‘If I give myself enough time, I can have all of my technology tools fully customized and beautifully integrated on the day I launch my firm!’ The reality is that most systems can’t be designed until client data is actually flowing into the system, which can’t happen until after the firm is established. They need to realize that most technology tools will not be up and running for some time after launch.

“Under most transition scenarios, the advisors cannot and should not load client data into their new customer relationship management (CRM) tool until after they have resigned. As for performance reporting, it will take a few weeks until a critical mass of client accounts have been opened and transferred to their firm’s custodian. At that point, the client data can begin to flow into the performance reporting tool from the custodian.

"Until the householding of accounts is established inside the reporting tool, the trading and rebalancing software won’t be functional.

“All of these technology customizations need to take place while the advisors are primarily focused on meeting with clients and inviting them to the new firm, so there is a lot going on.”

Matt Sonnen, Founder & CEO, PFI Advisors, a consulting and advisory firm in Redondo Beach, California

Don’t try to conquer the world on Day 1

“Newly independent advisors often become so intoxicated by opportunity (establishing ancillary business lines, M&A opportunities, participating on social media and in the press and literally screening out hundreds of vendor options) that they sometimes lose sight of the basics.

“Shoring up the business and ensuring the infrastructure and processes are rock solid, first, before tackling other strategic initiatives, will enable an advisor to scale more efficiently in the future and realize the maximum value from deferring on the exciting aspects of running a business for the first time. In other words, crawl before you run! Advisors take the entrepreneurial journey for a reason, but they need not accomplish every little thing right away.”

Louis Diamond, president of Diamond Consultants, a financial advisor recruiting and M&A advisory firm in Morristown, New Jersey

Don’t let the non-existent ‘perfect’ be the enemy of the good

“I believe one of the biggest traps advisors make when going independent is trying to completely replicate the big firm experience from the beginning. You obviously want to make sure all of your regulatory filings are done appropriately, but I believe we set the bar too high with everything after that.

“The truth is that as a solo advisor, your tech stack, your workflows, your marketing collateral and everything will not operate with the same efficiency as a large firm. That's okay! As long as you are in regulatory compliance and ensure you are providing value to your clients, the sophistication of your firm's operations will develop and improve with time.”

Anna N’Jie-Konte, President, Dare To Dream Financial Planning, an RIA in Silver Spring, Maryland

In the beginning, be a jack-of-all-trades

“Make sure you are ready to roll up your sleeves and do every job under the sun. This includes everything from ordering supplies to building the deck from scratch to rebalancing a portfolio by Excel until you pick the right software and systems. Make sure you have a runway, as everything takes three times as long as you think.”

Jennifer Kenning, CEO and Co-founder, Align Impact, an RIA in Santa Monica, California

Leaving a wirehouse? Realize that you’re not as great as you think you are

“Ego is a big driver for many advisors, who don’t want to admit they don’t have all the skills or time to effectively run a full-service high-net-worth practice. Be part of a larger team that can offer the full range of services that high-net-worth clients need. Don’t go at it alone. If you are part of a high-quality team, you don’t have to know it all.

“Every team needs a “glad-hander” to bring in business (which is not as easy as it looks to those who have other skill sets to run the business), but both are essential aspects of an ensemble practice. Bells and whistles” — customer relationship management software (CRM), research and performance reporting engines — “aren’t critical out of the gates until you get your clients transferred to their new custodian.”

Scott Wilson, Senior Managing Director and COO of Kestra Private Wealth Services, part of Austin, Texas-headquartered Kestra Financial

Get into the weeds

“Examine a potential partner firm’s culture, ethos, client service philosophy, and meet as many team members as you can. Don’t just settle for the “dog and pony” show. Meet the team, go to lunch or dinner with other FAs and get a real sense of how people are treated at an organization you may partner with. Don’t just let them offer you a presentation about the firm.

“For instance, we just did a virtual visit with a prospective advisor this morning that included our Head of Planning so that she could see exactly how we can help the advisor better support their clients from an advanced and estate planning perspective, with a deliberate look at the potential tax changes that may be underway and accounted for.

"Similarly, we have an advisor that approached us about joining our firm and we offered to run a financial planning case scenario for one of his clients and then walked them through, in detail, how we would design and execute the plan. The point is, drill down and look at specifics.”

Robert Sandrew, Chief Growth Officer, Integrated Partners, a consulting, advisory and services firm in Waltham, Massachusetts

The right partner can save you time and energy

cropped Rianka Dorsainvil & Lazetta Braxton_jpg.png

“It takes a lot of stamina and savvy to wear all of the hats necessary to operate a successful business. Finding the right partner who shares your vision and aligns with your values accelerates the opportunity for immediate synergies and increased profitability."

Rianka Dorsainvil and Lazetta Rainey Braxton, co-CEOs of 2050 Wealth Partners, an RIA in Lanham, Maryland

Expect to feel initially like you’re on an island

“When you’re independent, you wear all the hats, not just the advisor hat. Compared to a brokerage with all the support, you feel like you’re on this island. At first it can be a little bit of a shock and seem overwhelming at first. You’re the CFO, so you’re dealing with QuickBooks, managing the cash flow. You really have to wear that ownership that you didn’t have to wear before. Lots of my clients do these things, and now I’m doing it for myself.”

Lindsey Rhea, owner and managing director of Alia Wealth Partners in Germantown, Tennessee (an RIA that’s part of LPL Financial)