Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Advisors increasingly see the value of independence. What remains to be proven, however, is whether it’s worth it.
There is a plethora of information available – from toolkits to white papers to seminars –about how to best break away from your current firm. But what about the fundamental question of what kind of a practice you should establish? There are many shades of independence and you should evaluate which one is best for you.
Why advisors take this risk
If you’re reading this article, chances are that you’ve decided to move for one of two reasons. You feel you can grow your practice better in a different environment. For example, maybe you’re frustrated by restrictions about how to be a fiduciary for your clients and the ability to execute on financial plans or access an open platform of investments. Independence allows you to serve your clients the way you want, not the way your firm wants. Alternatively, something has changed within your company – most likely compensation arrangements – and you feel that the environment is heading in another direction.
Independent broker dealer
Advisors who join an independent broker-dealer firm enjoy the ability to freely brand themselves without having to incorporate the house firm’s brand. The broker dealer will sponsor the advisor’s FINRA licensing, provide compliance support and some technology infrastructure, but the advisor is responsible for his or her office space, team members, etc.
Regional broker dealer
Many advisors who are considering the independent channel are well-served by working with a regional broker dealer. These firms tend to offer more resources than the advisor would receive under the independent broker-dealer option, with the firm providing in-house portfolio management, office space, compliance services and more.
Totally independent RIA firm
Advisors who pursue this option establish their own RIA firm by registering either with their state or with the SEC. This is a highly entrepreneurial choice. The major advantage is that the advisor becomes a true business owner and has total freedom to run the firm as he or she chooses. For example, you choose the compliance firm, establish your technology platform, and dictate all terms of the business model and brand. There are also many outsourcing options for the RIA firm across all lines of business: compliance, technology, investments and financial management.
On the flip side, advisors are responsible for any costs associated with doing business and they aren’t able to reap the benefits of a scaled platform. Vendors are doing business with a small firm rather than one that is part of an enterprise, which may result in costs you’re not exposed to working at a larger firm. The advisor is responsible for any and all resources as they start and build their firm.
Joining an existing RIA firm (tuck-in)
Advisors wishing to join an existing RIA firm (tuck-in) enjoy the benefit of participating in a platform that already has been established, including a range of real estate, compliance, technology and investment options. As many of the operational elements are already in place, in this scenario the benefits are speed-to-market and client continuity. This scenario provides the advisor many options around ownership of their clients, different compensation models and the ability to pick and choose the right cultural fit. It also helps to work with RIA firms who have some experience tucking in advisors to help grow their practice.
Staying the course
If none of these options resonate with you, simply staying the course at your current firm may prove to be the right answer. You most likely are familiar with how your firm will allow you to “sunset” your book of clients. One suggestion would be to compare how this payout structure stacks up to what you would be earning over time in some of the other models we discussed above.
Summary
Advisors looking to break away have a variety of options. The main factors that come into play relate to the degree to which the advisor is willing to invest in the firm’s resources and the degree of flexibility desired. If you are considering breaking away and would like guidance on which options may make sense for you, please feel free to get in touch with me for my thoughts.
Best of luck!
Advisory Services offered through ACG Wealth, Inc.
More Financial Advisor Transition Topics >
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.