October 31, 2013

When It’s Time to Run, Not Walk, to Independence

Advisors Traci Richmond and Mike Patton talk about why, how and how not to make the big move

Traci Richmond, president of Bethesda, M.D.-based The Meakem Group, has an important piece of advice for any financial advisor thinking of going independent: Make the move sooner rather then later – especially if you feel you’re the wrong fit for where you are.

Richmond, like scores of advisors across the country, spent many unhappy years at a large wirehouse that went through numerous iterations and top-down mandated changes. These decisions created an increasingly stifling atmosphere that not only increased Richmond’s malaise, but also made her feel that her job had become meaningless and unfulfilling, and that as an advisor, she was but a “necessary evil” for the firm to put itself front and center.

“I felt like I had become a glorified bank teller and the obstacles provided were of no benefit to my clients,” she said.

Finally, Richmond — who kicked off ThinkAdvisor's “Going, Going, Gone — Going Independent and Beyond” virtual conference on Wednesday with her keynote address: “Going Independent: Why, How and How Not” — decided to leave the wirehouse that she had begun to hate working at. After a period of serious soul searching, careful thought and many discussions with other independent advisors, she knew she wanted to go independent.

Today, as a member of the independent contractor division of Raymond James, Richmond is right where she wants to be. Her business is flourishing, and her clients are also extremely happy.

“Being in a good fit where I can serve clients better makes it a pleasure to go to work, and now that I know what it feels like to be independent, I will never go back again,” she said.

There’s no doubt that running one’s own show can be very rewarding. But making the leap to independence is far from simple, and for most advisors (42% of those who listened to the keynote address said they worried about being independent), the prospect of leaving a larger firm to go out on their own is extremely daunting.

“I had a nice salary and a bonus, I was making decent money and that was hard to leave,” admitted panelist Mike Patton, president of Baton Rouge, La.-based Integrity Wealth Management and a ThinkAdvisor contributor.

Still, the first step toward independence is actually making the decision to become independent, Patton said. When he took that step, “it was the best career decision I ever made.”

There is no one-size-fits-all route to independence, but proceeding in a well thought out and methodical manner can go a long way. Patton spent a year and a half analyzing all the reasons why he wanted to be independent, and this helped him to eventually get to where he wanted to be.

As such, a nuts-and-bolts transition plan is important, he said, and should cover a host of issues, including income and profitability; inflows and outflows; pricing structure; options for custodians and technology platforms and of course, the number of clients an advisor is likely to bring over from his previous firm.

It is also very important for advisors contemplating an independent career to figure out just what kind of independent structure — an RIA or an independent broker-dealer — would be the best fit for them.

Richmond, for instance, knew she wanted to have the support of a firm that viewed advisors as a core business and not as an “inconvenient sideline;” that allowed advisors to use their own business models and that offered easier and more meaningful access to top management. She also wanted to be part of a firm that placed great importance on the continued evolution of technology.

Finally, it goes without saying that the legalities of leaving a larger firm and becoming independent are very important, and 37% of those who listened in on the keynote address have concerns about them.

To that end, hiring an attorney to help explain the implications of documents like the Broker Protocol is key, said Stephen Galletto, an associate in the law firm Stark & Stark in Princeton, N.J.

In fact, advisors should seek legal counsel as soon as they have decided to break away from their firms and go independent, Galletto said, so that they can have a professional read through their contract and all the documents they’ve signed to let them know exactly what they can and cannot take with them when they leave; what they’re “on the hook for” and what the potential loopholes may be.

Failure to seek proper legal counsel, the lawyer warned, could result in some nasty and costly surprises not too far down the road.

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Please click here to view this archived presentation, and all the presentations, from ThinkAdvisor’s virtual conference on Going Independent.

Check out more ThinkAdvisor coverage of the issues involved in going independent.

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