The logistics, the legalities and, of course, the expenses involved in setting up an independent advisory firm make many advisors hesitate to move from an employee-based model to an independent model, be it an independent broker-dealer, an RIA or something in between.
But Alan Harter, managing director of Pactolus Private Wealth Management, urges advisors who are thinking of taking the great leap forward to stay focused on the great opportunities that independence can yield, because today, there are many companies that provide stellar support systems for advisors who want to go independent. Hooking up with one of these and leveraging their services enables advisors to not only create the kind of unique business model they want, but also to sustain these and scale them up significantly over time.
When he set up Pactolus in 2011, Harter — who spoke on a panel entitled “Unusual Business Models” at the recent “Going Independent and Beyond” virtual conference hosted by ThinkAdvisor — chose to go with Dynasty Financial Partners, an integrated platform service provider that has “tucked in” 49 advisors to date with $18 billion in assets.
Dynasty provides a complete suite of services, ranging from real estate functions to integrated technology solutions and back-office services, to help independent advisors start and grow their businesses. As with other similar providers of "going independent" services, the firm helps newly independent advisors select custodians, design promotional material, get access to macroeconomic research and even provides debt services if an advisor requires capital.
In short, “we have a central service model where every firm in our network has someone delivering what they need in terms of core services and integrated back-office services to help them grow,” says Shirl Penney, Dynasty’s founder and president, who also spoke on the panel. “About half the advisors [in our network] came from a captive/wirehouse model and had decided to launch their own brand and firm; the other half were already independent but serviced by 25 vendors and were spending too much time on administration and back office. They wanted a growth partner to simplify back-office work and give them more scale and allow them to be part of a community that shares ideas and best practices.”
Today, more and more independent advisors are joining these kinds of communities — networks, as it were — through which advisors retain control of their unique business models and destinies, yet can count on the services and capabilities of companies that understand their desire to be independent and that believe in supporting those unique businesses.
“We look at all the different business models that our advisors have and we say ‘how do we fit into your box, how do we fit to your model?’” said panelist Jeff Vivacqua, first vice president of business strategy at Cambridge Investment Research. “We don’t have an active involvement in their practice: They own it and they control the journey.”
Tools and Services to Support an Advisor's Vision
Vivacqua believes that the majority of next-generation advisors will be independent and that they’re going to need the support of companies, like independent broker-dealer Cambridge, that offer commoditized tools and services to support the vision they have for their businesses. Cambridge’s network comprises more than 2,500 independent advisors with $57 billion in assets (and its reps named Cambridge one of Investment Advisor’s Broker-Dealers of the Year).
Because of his relationship with Dynasty, Pactolus’ Harter has been able to create the kind of advisory business that would not be possible within the confines of a large wirehouse.
More than 90% of his client base is first-generation entrepreneurs actively involved in running their own businesses, and his firm is a venue for them to come together as a community that shares business expertise and ideas that then parlay themselves into investment opportunities.
“We have 13 different industries in the group, and the idea is ‘What better partners to have than people who are experts in their industry?’” Harter said.
His clients meet annually to discuss their different businesses, and based on that expertise, Pactolus puts together investment deals that all the member firms can avail themselves of and benefit from.
“All our families are embracing the idea of collaboration and club investing,” Harter said. “We also work with them on how to move their core values forward, but none of this would have been possible without having a robust, independent channel in which to operate, because without the backbone of a technology and resource partner, or a third-party money management partner, you really cannot act in the true interest of your clients or attain any scale.”