Commonwealth: Thinking About Going Independent? Pros and Cons for Advisors
If you’re considering breaking away from the wirehouse, you’re facing one of the biggest planning decisions you’ll ever make for yourself. Weighing your choices may seem overwhelming, but your entrepreneurial spirit is beckoning. For many, a decision comes down to a desire to be a business owner—or not. Below, we explore what the pros of ownership control might look like, as well as the cons of giving up established wirehouse benefits.
Pros: 4 Ways You Gain Control
1) Ownership. As an independent advisor, you’ll be building a business for yourself—not the wirehouse. You choose the business model that works for you and your clients, with a custom fee schedule that compensates you appropriately for your time and expertise.
Start a solo practice, join an existing independent firm, or build an enterprise. You can practice as a dual registrant who combines both commission- and fee-based business. Or, if you want to focus on financial planning, you can become a fee-only advisor under a partner firm’s corporate RIA or your own newly established RIA. As your clients’ needs and your business evolve, you’re free to adjust your approach.
2) Client roster. You choose which clients you want to work with. Don’t want to set an investable assets minimum? You don’t have to, though you should keep in mind that capacity and scalability can become an issue if you don’t. When relying on your own guidelines, you’ll be able to take on promising clients such as HENRYs (high earners, not rich yet) and the go-getter children of boomer clients.
This all adds up to great potential. Because when you build the experience you want your clients to have, they’ll know you’re dedicated to their needs, not the needs of the wirehouse.
3) Office environment. If you’re thinking about breaking away, you probably have a vision of the perfect office environment. Will you rent space in an office park or a local historic home or, given the ongoing pandemic, start off by working out of your home? What hours will you keep? You run the show, so there’s no need to punch a clock.
These are just some of the decisions you’ll get to make. Consider also that you’ll be able to choose your support staff, technology platforms, marketing budget, and more. No approvals from the bureaucracy will be necessary.
4) Investment solutions. Discretionary control over the management of your clients’ investments is part of being the business owner. Through a partner firm, you can gain access to an open architecture platform that frees you from production quotas. And the pressure to use proprietary products and services offered by the wirehouse? Say goodbye!
Instead, you can identify appropriate options for your clients from a plentiful universe of investment solutions, enabling a new decision-making transparency. Clients should appreciate this change, which will help you deepen relationships and improve retention.
Cons: 4 Benefits You Might Miss
1) Well-known infrastructure. Giving up the name recognition of a regional or national wirehouse is no small loss, especially when you’re starting out. Plus, you’ll have to deal with establishing operations procedures, a service menu, fee schedules, and office policies when you leave the big firm behind.
2) Client roster. You might be wondering whether it’s smart to give up your access to a roster of wealthy clients, such as you likely enjoy with the wirehouse. You can’t be sure if clients will follow you (although experience says many will want to keep a strong relationship with you intact). Establishing a new client base will be an ongoing marketing challenge. You’ll have to manage your client base carefully to ensure that you receive appropriate compensation for your time and expertise.
3) Established office. In your current situation, you probably don’t have to think about setting up and running an office. On your own, unless you work from home, you’ll have to find and lease office space. Purchasing computers and supplies will be necessary, as will consultations with IT and security experts.
Start-up costs can be considerable. And there will be ongoing payments for rent, utilities, research and planning software, and staff salaries and benefits. You’ll need a detailed road map to control these expenses.
4) Investment resources. If you break away, you’ll be trading your firm’s proprietary research resources for a wider spectrum of investment choices. Performing due diligence can be time consuming, however, when you don’t have a whole staff of analysts ready to recommend investments and products. With a preset roster of available products, you don’t have to navigate the huge number of options available to an independent.
The Right Choice?
Ultimately, you’ll have to look to your heart to decide if you want to be a business owner. The good news is that most of the firms you’ll explore partnering with offer robust, ongoing support, including operational, investment, and marketing services. It’s a myth that as an independent you’ll be on your own out there!