In a new episode of the Financial Planning Podcast, Alan Foxman talks about what to expect when you’re expecting to make a move.
Foxman, a managing director with Foreside Financial Group, now ACA, brings decades of experience in the world of financial and professional services to this week’s episode. He’s been a member of the Florida Bar since 1988, and from 1989 to 1997, he was a staff attorney with FINRA in their Office of Dispute Resolution.
After leaving FINRA, Foxman founded and ran his own law firm concentrating on securities law until 2007. He also served as chairman of the Government and Regulatory Committee of the former National Association of Investment Professionals.
At ACA, Foxman is in the investment advisor consulting department and was with Foreside since 2010 before it merged with ACA in May of this year. He manages a team of consultants and provides compliance consulting advice to RIAs. In line with that passion for giving advice to RIAs, he joined the FP Podcast this week to deliver some key advice to advisors eyeing independence.
During his conversation with FP Podcast host and lead editorial producer Justin L. Mack, Foxman talks about all the new pressures that rush in when you become your own boss; the compliance challenges that go along with it; and the importance of setting goals for yourself along the way.
Listen to the new episode — as well as all future and past episodes — by subscribing to the FP Podcast on
Transcription:
Justin L. Mack: (
Good morning. Good afternoon. And good evening. Welcome to the financial planning podcast. I'm your host, Justin L. Mack, Wealth tech reporter with Financial Planning. And it's my pleasure to introduce this week's guest Alan Foxman, managing director with Foreside Financial Group. Alan, thanks so much for joining us this week.
Alan Foxman: (
Thank you. I'm glad to be here.
Justin L. Mack: (
All right. Now, Alan brings to this week's episode, decades of experience in the world of financial and professional services. He's been a member of the Florida bar since 1988 and from 1989 to 1997, he was a staff attorney with FENRA and their office of dispute resolution. After that he founded his own law firm concentrated on securities law until 2007. He's also served as the chairman of the government and regulatory committee of the former national association of investment professionals. At Foreside, Alan is a managing director in the investment advisor consulting department and has been with the organization since 2010. He manages the team of consultants and provides compliance, consulting advice to RIAs and keeping up with this passion of giving advice to RIAs today, we're going to talk about movement breaking away without breaking your spirit as it were. And I wanna dive right into the topic today by discussing two big things breakaways need to consider when starting off fresh on their own and all the work that comes with being your own boss and the double whammy of waking up one day and realizing that when you do that, you're suddenly your own chief compliance officer, a lot to keep in mind, but Alan, like I said, wanted to kick off the conversation with all the new pressures that come when you break away.
Justin L. Mack: (
And you are your own boss master of your own destiny, but I imagine planning should start before you make that move and parting ways and how to do that elegantly probably a big thing that people should keep in mind. What, what should advisors who are thinking about that know?
Alan Foxman: (
Sure. Uh, Justin, I should also mention, uh, that, uh, uh, on, uh, May 31st, uh, foresight financial group merged with, uh, ACA group. Um, so we're, we're now, uh, one of the largest, if not the largest, uh, providers of, uh, governance risk and compliance, uh, solutions. So, uh, just wanted to mention that. Oh,
Justin L. Mack: (
Absolutely. So, excuse me. ACA Foreside is now the organization, correct?
Alan Foxman: (
Right. All right. Wonderful. Yeah, I think the formal branding is ACA group, uh, going forward, but, uh, yeah, so we're excited by that. Um, but anyway, um, so yeah, when, when breaking away from, uh, your broker dealer to start your own advisory advisory firm, um, there's really two sides to consider there's the legal business side of it. And, uh, there's also the compliance and regulatory side and, you know, when you're starting any new business, you know, the legal, uh, business side of it is the same, you know, regardless of the type of business that you're starting. So you've gotta look at and consider, you know, contract issues that you have with your current employer, you know, are there non-compete issues, are there non-solicitation issues, uh, do you owe your former employer, uh, any money from a, a, you know, in, in the industry, uh, promissory notes or a frequent issue, and then there's, you know, considering the type of corporate formation, uh, that you want to use, you know, do you wanna form an LLC, an S Corp, a partnership there's legal issues, the articles of incorporation or articles of organization partnership agreement, if you're gonna be in, in partner, uh, with somebody or an operating agreement, uh, if it's an LLC, there's also, you know, the various startup costs that need to be considered.
Alan Foxman: (
So all of these things that you would normally have to consider in starting any business are the same in this industry as well. And you need to plan for those things before, you know, making the jump. But in addition to all of that, you know, the securities industry is one of the most heavily regulated industries in the country. So you have on top of all of the normal, uh, startup issues, uh, you have the regulatory and compliance, uh, requirements that you need to, uh, consider for example, things like what custodian will you be using? Uh, where do you wanna register? You know, are you gonna be, uh, state registered, or can you qualify for SCC registration? Um, there's code of ethics issues, document retention issues, vendor due, diligence, privacy, and cybersecurity issues, disaster recovery, um, succession planning. Those are, are, uh, all hot topics with the, uh, with the regulators these days, there's advertising issues, you know, dealing with, uh, testimonials and solicitors and performance advertising every year.
Alan Foxman: (
The sec puts out, uh, its, uh, annual exams priority letter, uh, that tells you what the, uh, regulators are really gonna be focusing on in that coming year. Uh, it doesn't necessarily mean that they're not gonna be looking at some of these other things, but it kind of tells you what's upfront and foremost in the, in the regulator's minds. So for example, this year, the exam priority letter, uh, references, uh, private funds, ESG information, security, crypto assets, all of these things are kind of the, the hot button topics, uh, that the SCC is focused on and you should be focused on if you're thinking of, you know, breaking away, you know, you want to look at what the SCC and the regulators are, are focused on and, and see how that might, uh, or might not, uh, impact, uh, your focus on, on what you want to do going forward with your, uh, particular business.
Justin L. Mack: (
Absolutely. And, and a great point and something I'd love to have you go into a little more. And, and that's that focus, uh, like you said, by being focused on what regulators are putting top of mind can make things a little, I guess, more fruitful for you. Once you start setting up a strategy. So one you're doing things mindfully and not just trying to figure out what your compliance setup is going to be without any kind of guidance. And, and I imagine by having that kind of focus, it narrows down the process because there's gonna be a lot of processes. Uh, so I wanted to talk about the importance of setting goals and what kind of goals RIAs should be setting when they are breaking away. You know, those first things that can make the rest of your business a lot easier in the long run, if you focus on them at the beginning.
Alan Foxman: (
Right? So, you know, the, the first question you really need to ask yourself when you're looking to break away is, you know, what do you want to do? You know, what's, what's the big picture? Are you just gonna be providing financial planning or do you want to provide portfolio management, even within that question, there's additional questions. Do you want to provide discretionary or non-discretionary portfolio management or both? Do you want to, uh, deal with, uh, private funds? Are you going to be focused on, uh, elderly or young professionals or high net worth ultra high net worth clients? A lot of times this focus is gonna be determined by what you've been doing, uh, with your broker dealer, presumably hopefully you might be able to take some of your clients or all of your clients, depending on the relationship you have with your current employer, um, which is another issue, you know, can you take those clients with you?
Alan Foxman: (
And, and so if you can, you know, that might determine what you're gonna be doing going forward, because you already have that client base and you have that experience with that particular client base, whether that's working with institutional clients or, you know, your typical, uh, retail, you know, mom and pop, you know, do you want to work with other investment advisors and, and, you know, be a, a large firm that's gonna grow into a, uh, multidisciplinary practice or do you just want to be that solo practitioner, you know, providing individualized, uh, personalized service, uh, do you want to have a robo advisor, uh, solely, or perhaps as a piece of your business, you want to work internationally? I mean, there's just so many questions that you need to ask yourself just to define your goals and where you want to go with it and what you want to do.
Justin L. Mack: (
Absolutely. And I guess in your experience, what are you seeing as far as how prepared advisors and individuals are to do all of that when they make that move? Because this is advice that hopefully again, folks are, are thinking about some of these steps before making that move. So I guess just in your personal experience with the folks that you're working with and helping make that move, our advisors picking up on that, are you seeing, I guess, a greater level of preparedness? A reason I ask is because we know movement is so much higher now we're seeing a higher rate of breakaways. So with all of the movement, our people really starting to figure out how it works. And, and I guess getting going a little bit smoother than maybe in the past.
Alan Foxman: (
Yeah. I think that there's really a significant proportion of the, the breakaway advisors that have done their homework, which is good. Um, and they know what they want to do. And they, and they've, you know, talked to professionals, whether it be, uh, a consulting firm like, uh, ACA or, or an attorney, uh, that, uh, practices in the field and they've, and they have a good sense of what they want to do. But, you know, there still are, you know, quite a number of advisors that we get that we need to kind of shepherd them along and, and help them understand where they want to go and, and what they want to do. And the, and the pluses and minuses of the various focus that they want to, um, concern themselves with, because nothing is perfect, you know, and that's, that's also something that they need to understand that there is no one size fits all.
Alan Foxman: (
There is no perfect solution. They have to be prepared for the, for the downsides as well. Um, you know, there are enormous rewards with being your own boss, uh, or even if you're a partner, you know, having your own firm, uh, and, and building something. And, uh, frankly, that's one of the things that I love about this job, um, as a consultant is helping people build something. You know, when I, when I worked as an attorney, it was always, you know, we're fighting with opposing council and you're fighting with arbitrators and, and it just was not my style. Uh, so I really enjoy helping people, you know, build something and, you know, that's, uh, uh, that's something that, uh, is, is worthwhile endeavor for a lot of people. They, they, you know, that's, mm-hmm, why they go into this business.
Justin L. Mack: (
Definitely. And I'd love to hear the personal that's great, you know, the, the personal benefits of doing this work too, uh, going to collaboration over confrontation. Good for business. Good for the soul a little bit. I imagine so awesome to hear. All right, now we're gonna take a quick break again. This is the financial planning podcast. We are chatting this week with Alan Foxman. Be right back. We're gonna take a quick break with the word from our sponsors. And welcome back to the financial planning podcast. This week. Our guest is Alan Foxman of ACA Foreside, uh, now of the former Foreside Financial Group after the merger with ACA group. So a little bit of news on the podcast. If you hadn't heard the news, check it out. I will say this is breaking even though this is recorded in advance , but Alan, wanna thank you again for taking the time to join us this week.
Alan Foxman: (
Thank you, Justin.
Justin L. Mack: (
All right. Now, before we went into the break, we talked about, again, setting goals, helping people build as they make that move and the homework that advisors are doing before taking off, let's talk a little bit about getting prepared financially, because I imagine there's costs associated with this move. What do advisors need to know about financial preparedness before breaking away?
Alan Foxman: (
Right. So, you know, in addition to, you know, the typical startup costs with any business, uh, rent utilities, hardware, software, legal, accounting, all of those types of things, you also need to make sure that you're budgeting, uh, appropriately for compliance, uh, services, whether, you know, whether you're gonna do that on your own, uh, or hire a consulting firm or hire somebody, you know, if you've never, if you've never done or been in involved in the compliance side of things, when working for a broker dealer, it can be intimidating for, you know, for some folks to suddenly have to be responsible for all these compliance tasks. And, you know, that's, uh, another thing that you may need to budget for whether it's a, uh, a consultant or, you know, hiring somebody to be your, uh, chief compliance officer or somebody who, who has that familiarity. Uh, you also need to be aware of, uh, whether or not there's any minimum net capital requirements, uh, in your particular state.
Alan Foxman: (
Uh, this is more of an issue for state registered advisors rather than NCC registered advisors. But, um, uh, you know, if you're going to be state registered, uh, you need to be aware of, you know, whatever minimum net capital requirements, uh, there may be there's, uh, other, uh, licensing fees, examination fees, registration fees, uh, that you need to budget for, um, mark, you know, and then the typical kind of marketing expenses and, and, uh, other types of, uh, hiring and, you know, uh, payroll, that type of expenses, if you're going to, you know, have an assistant or, um, hire other, uh, folks to be investment advisor representatives and work for you, you know, you need to, you know, figure that out as well.
Justin L. Mack: (
And on that topic, when, when you're in figuring things out, who should you turn to, if you've hit a wall and you don't know what to do next, uh, what kind of, I guess, individuals or organizations do you need to be turned into for help?
Alan Foxman: (
Well, uh, yeah, I mean, in terms of financial, or
Justin L. Mack: (
Just not just financial, but kind of through, like, we talked about getting those goals set up and, and is there anyone, I guess you should think about first, as far as whether it be, you know, legal representation or just kind of top of mind, Hey, these are the folks that I need to have figured out before I even get started at all.
Alan Foxman: (
Yeah. So the, you know, a lot of firms will start out by, uh, looking at the custodian that they're gonna use. So they'll look at the various brokerage firms that are available. Uh, there's a number that are very, uh, friendly towards the, uh, independent RIA channel. There are some that are less, uh, less so, and oftentimes, you know, depending on the broker dealer that you're talking to and the custodian that you're gonna be using, the platform you're gonna be using, they can answer a lot of questions that you might have as well. And then of course, you know, reaching out to a consulting firm like ACA, uh, we can also assist, uh, in that, um, talking to other investment advisors or, or looking at the investment advisor association, the IAA NASA, the, the north American securities administrator association has a lot of good, uh, material on their website as well. So there was a lot of good resources out there to, uh, to turn, to, to, you know, get answers to a lot of these questions.
Justin L. Mack: (
Wonderful, wonderful. And then just wondering what your thoughts are, as far as how much this movement or this momentum will keep going, as we've talked about, you know, breakaways becoming more and more common, a lot of movement, a lot of excitement about that, just in, in your professional opinion, what, what do you think as far as keeping that trimmed up? Are people gonna keep continuing to do this at such a, a high rate? And I guess what what's motivating this a little bit.
Alan Foxman: (
I think there's a several factors that, that motivate it. Um, probably in my mind, the, the biggest factor is, you know, the dissatisfaction with working for the big wirehouses. Um, you know, there's, it's always a challenge, you know, working for that large kind of wall street, uh, corporate, uh, mentality. Um, unfortunately in the past, there have been situations where, you know, some of the big broker dealers have kind of thrown their people under the bus when, when, you know, the markets turn bad, uh, or when a particular, uh, product, uh, that, you know, the, the, the firms were pushing, uh, you know, goes under. And, uh, they're looking for somebody to blame. Additionally, you know, there's always, as I said, you know, something, something to be said for being your own boss and, and having that, uh, kind of visceral satisfaction of, of charting your own course, you know, are these breakaways going to increase decrease?
Alan Foxman: (
I, you know, I, I do think that they're going to be increasing. I think that this, uh, the, the model of the independent, uh, investment advisor, uh, is just gonna keep gaining traction. You know, there are some bumps in the road, obviously, you know, when the markets turn bad, uh, you know, and there's kind of a, that slow down overall. So, you know, clients don't have the kind of money to invest. And if they, you know, if you don't have the clients investing, then you know, it's hard to, to, uh, stay in business. And then, you know, so what you find is a lot of, uh, consolidation, not a lot, but you, you find some consolidation where some of the smaller firms wind up merging with each other, uh, or they get bought out by a larger firm, but even so even with that kind of consolidation, there's still so many reps on the, on the brokerage side that, you know, it's kind of a, a never ending supply of, uh, of folks who want to, uh, start up their own advisory firms. And, uh, so I think that, I think the trend is, is just gonna continue
Justin L. Mack: (
Definitely. And then just kind of end to end things too. And it kind of goes almost with what you said about, you know, making the transition to doing the work that helps these advisors start to build a lot of advisors breaking away to help with, uh, maybe a particular client base or run the business in a way that makes them feel good about the work they're doing, because all the advisors we talked to when it came to the core of why they do this, it's, Hey, I wanna help people. I love seeing people, you know, hit their goals and me being the person that helped get them there. So a lot of breakaways are, are being started with focuses on particular client groups. And it's a lot of good vibes all around, which I think is, is awesome. So with that, I don't wanna overstate and make it seem like this is such an easy thing to do, just because we're seeing it at a higher rate. And I'm sure you know, that not an easy thing to do to strike it on your own. Um, so I imagine there's times where it gets tough and that's why advisors come to folks like yourself and so many others for that guidance. Just any words of wisdom to, to send people off with about how to keep that going when things do get hard and how to keep, why you're doing this at the core of everything you're doing on the business side.
Alan Foxman: (
Sure. You know, the, the, the main thing to keep in mind when you become an investment advisor is that, you know, you're a fiduciary, which means that you have to act in your client's best interests and put your client's interests ahead of your own. And, you know, it's important to keep that foremost in your mind, because, you know, even though, you know, a lot of guys, they get into this, uh, uh, to, to, um, you know, help people, you know, they start making money and you suddenly wanna do too much. Um, and, uh, and, and as a fiduciary, you have to keep in mind that you don't want to overreach. You know, you, you want to ask yourself, you know, is this really going to benefit my clients, or is this just something that I want to do because, you know, it sounds cool that I have my own hedge fund.
Alan Foxman: (
I would, I would urge folks to, uh, when they're getting into this to kind of let your firm grow organically, you know, again, don't try and overreach and try and do everything. You know, I, I find that that's where, uh, a lot of, uh, advisors kind of, uh, get, get themselves into trouble, um, not necessarily regulatory trouble, but just, you know, they're trying to do too much. And, and they don't understand that, you know, you're, if you're moving into a new business line, that there are new challenges and new compliance obligations that are, are likely to come along with that new business line, and you wanna make sure that you're comfortable, you know, with, with what you have now, and that you're, you know, moving along in the right direction before you, you, you know, decide to open a, uh, hedge fund or, you know, move into an, uh, offshore clients or something, make sure that you're doing, you know, what you, uh, need to be doing with your initial business line and let your, let your firm grow organically.
Justin L. Mack: (
Absolutely well said. And I think that is a perfect way to, to end it remember organic growth don't force it. And, and, you know, you can start to, like you said, have that alignment of breaking away, charting that course, but doing it in a way where you don't break away and break stride at the same time. Cuz that is not the go.
Alan Foxman: (
Right.
Justin L. Mack: (
All right. Well wanna thank you again, Alan, for taking the time to join us. And I want to thank everyone for listening to the financial planning podcast. This episode was produced by Arizent with audio production by Wen-Wyst Jeanmary. Special, thanks again to our guest, Alan Foxman. Rate us, review us and subscribe to all of our content at www.financial-planning.com/subscribe. From financial planning, I'm Justin Mack. Thanks for listening.