From the June 2014 issue of Research Magazine • Subscribe!

If You Go Indie, Will Clients Follow? The Great Leap of Faith

Going independent requires not just careful cost-benefit analysis but also a focus on your clients’ confidence—and your own

Illustration by Thomas Reis Illustration by Thomas Reis

A new wave of advisors is flirting with the independent channel—a move fraught with uncertainty, tinged with promise, and dominated by one core question: Will my clients follow me?

“A lot of research describes the transition to independence in behavioral and demographic terms. It does so with facts and figures about how many advisors are likely to move, the number of models they’ll choose from, and the percentage that are likely to be happy,” says Barnaby Riedel, chief research strategist for Riedel Strategy, a Newport Beach, Calif.-based market research and communications firm. “Yet advisors, almost universally, talk about the move as a kind of leap of faith. If you miss that kind of leap, and the quality of the decision-making, you miss the most important aspect of the advisor experience.”

Riedel says the independent sector has tended to push the benefits of a move while failing to address the costs involved. He dismisses those benefits—a broker-dealer's or custodian's performance, technology, culture, payouts—as mere table stakes.

“Advisors measure success not in terms of what they got but in terms of how these costs were mitigated. How many clients did they actually keep? How long before they were back up and running?” he adds. “They are operating within a much richer field than just performance would suggest. They are thinking about their families and a whole host of moral concerns, social concerns, relational concerns.”

The last wave of breakaway brokers was propelled by advisors distancing themselves from wirehouses whose brands were battered during the financial crisis. New elements are in play at the moment—fiduciary concerns and a rethinking of fees, chief among them.

Today's players are also moving to the independent space as a result of succession planning and lifestyle change.

As Tim Oden, senior managing director of business development at Schwab Advisor Services, puts it: “The content of the conversations we are having now is different. You have advisors who want to ensure a legacy for their clients and for their employees that goes beyond their own involvement with the firm. And you have people who have Type A personalities, are successful and wealthy themselves. They’re asking: How can I get out of getting up early, suiting up, jumping into my commute and working 10 hours? How can I get out of that model? I don't want to die in a commuter train or die at my desk.”

As niches evolve, advisors are also moving to the independent side to practice a specialty or even subset specialty, according to Richard Dragotta, an LPL Financial branch manager in Paramus, N.J., who heads a network of 90-plus advisors. Sample niches include the retirement plan market and Medicare and Social Security planning. “You’re going to see this gain traction as things get even more competitive,” he notes. “Everyone will have a specialty.”

While the desire to operate independently of a corporate agenda remains a driving force, most advisors today don't have to be sold on the depth of an independent offering. And with independent broker-dealers, RIA's and hybrids, there are more platforms than ever to choose from. What will never change? “It's still a trust me,” says Oden.

“Does it take faith? It takes a lot of faith. Will my clients buy the new model? Will they have faith and confidence in the new model? Will they get what independence does for them? Do they like me? Do they like the new friends I’m hanging out with?” he adds. “They need to be able to tell the story of independence very, very well.”

The Challenge Ahead

Dragotta has a term for the transition experience: controlled chaos. It's not particularly pretty, but it is doable.

As he positions it: “Will clients choose ‘you’ the person or ‘it’ the statement?”

The first thing he does is counsel advisors that change is good—as long as it's change in the right direction and for the right reasons. The most successful advisors, he says, are those who have thoroughly investigated and evaluated their options—and then executed in a timely fashion.

“It's never easy. But if you are a person who has built up years of relationships, they will migrate to you. When you talk to clients, explain it from the heart. The truth doesn't lie. There's a reason you are leaving and it's a personal reason. It's a personal connection,” says Dragotta. “It's about the relationship. As long as their money is still as safe as it was the day before, and as long as you can do the same business you could do for them the day before, retention is high.”

One other question that keeps advisors up at night: How do I survive a revenue gap?

“The allure has a lot to do with putting your stamp on something and calling it your own—not being part of a larger organization or someone else's employee,” notes Scott Curtis, president of Raymond James Financial Services. “You are moving from an environment where the space you go to every day is paid for by someone else; the folks on your team are paid for by someone else; the technology you utilize every single day is paid for by somebody else. If there is a big drop in the market, assets and revenues, all those fixed costs are now your responsibility. There is absolute anxiety that comes with it. For the right people with the right mindset, there is excitement that comes in addition to the anxiety.”

Last year, Cetera Financial launched its “Truth Is” campaign, designed to recruit new advisors to the 7,400-person network. Created by Riedel Strategy*, it deals with the leap of faith head on.

“All of the competitive messaging in the industry focuses on what advisors can expect to gain from transitioning to a new firm: a brand new iPad, culture. Yet our emphasis on gain is not congruent with the actual decision,” says Susan Theder, Cetera's chief marketing officer. “As humans we are driven far more by motivation to eliminate the downside and protect against risk than climbing to the top of the mountaintop for that dangling carrot. Fear of loss exceeds expected gains.”

The campaign explores those fears—led by shout-outs such as “Truth is explaining a move is easier than you think” and “Truth is your clients will follow you” and “Truth is you will wonder why you waited.”

“Instead of ignoring this side of the decision, we acknowledge the advisor's fears and use them to start a real conversation and a real relationship,” adds Theder.

A couple of months ago, Cetera's advertising and marketing campaign accounted for the largest proportion of advisor introductions in its pipeline—overtaking introductions from recruiters for the first time.

* - Editor's note: Barnaby Riedel clarifies that his initial research for the campaign was performed under the auspices of s2 Financial.

Their Style, Their Way

Dana Wilson and Shurnette Henry formed Papillon Financial in New York City last fall after partnering together at Cabot Lodge Securities. While they liked management, they said the environment was “old style wirehouse” and “old school”—not the right fit for them or their clients.

“When you’re working for a larger institution it's hard to have your ideas come to fruition the way you want to. They have their model, their structure and that's what has worked. They don't want you to come in and shake that up too much,” observes Wilson. “If you’re a creative person—Shurnette has studied dance and acting and I have a degree in marketing—it's hard to sit us down and say ‘No, you can't do that.’ When you go independent you are able to have that free range to express your ideas, and not just express them, but make them happen.”

Wilson and Henry currently manage $2 million* in assets for 20 entrepreneurial women and professional athletes. Theirs is a small business with big goals. They hope to see that $2 million* climb to $15 million this year.

“It's exciting. It's scary. Every day is different and new,” adds Wilson, whose firm is affiliated with TFS Securities. “It feels sometimes like you are free-falling. But we have never looked back.”

Editor's note 6/6/14: Research has been informed that a more precise description is "under $2 million."

Indie Advisors: What They're Saying

“Even if it's not acrimonious, it's enormously stressful. Everyone should recognize that the move to independence is a complex, labor intensive process. There are tons of moving parts.”

—John H. Robinson, Financial Planning Hawaii, Honolulu

“In the wirehouse world, you are subject to a degree to the agenda of those wirehouses. Pushing product is not how we run our business. Not having to deal with that world is very, very nice. The days of a mortgage broker walking into the office and saying we need you to do a certain number of mortgages a year—we don't have that. Our job is to thoughtfully manage money throughout our clients’ lifetime without competing priorities.”

—Brian Fink, Pacilio Wealth Management, Westport, Conn.

“This is probably one of the most difficult decisions an advisor encounters after years of being with a large wirehouse. The thought of having Joe Schmoe Financial on your business card versus the likes of the Big Bank names everyone knows. What will my clients do if I leave the Big Name? The thought of being on your own, on an island. Where do you turn for support? So many thoughts, so many worries, and year after year your paycheck gets cut and your production requirements get higher and higher just to maintain benefits. You get to the point where you say I don't want to be that guy anymore. At the end of the day, those that were born to be an entrepreneur, and truly value the clients they work for, will find a way and enjoy the entire planet now available to them while learning the real island they were on was the one they were thinking about leaving.”

—Michael Minter, Mintco Financial, Tampa, Fla.

A Faithful Leap

As an advisor with Merrill Lynch, Mike Gauthier wanted to write a book about financial planning from a Christian-based perspective. Absolutely not, he was instructed. He was also told he couldn't add Scripture to his marketing materials. So Gauthier took his niche and opened Strategic Income Group, an LPL Financial affiliate.

Since starting his firm a little over one year ago, Gauthier has published a book, formed a nonprofit to provide churches in the region with personal financial education, and used Scripture to help clients understand the importance of giving and tithing.

In the past year, Gauthier has bought a building and added two advisors plus two support staff. Ninety percent of his fee-based business followed him when he moved. The firm's AUM is now $75 million.

“Will they come? That was my biggest concern. And obviously when you do something like this there are costs involved. Will we get the numbers we need for this to have worked out financially? I had two small children and a wife at home. Our firm just celebrated our one-year anniversary and I cannot be happier,” says Gauthier, who is based in Chandler, Ariz. “It was by far the right decision, a crazy-busy time. I don't look down on my time at Merrill. It led me today to who I am as an advisor. The timing was right for our story. The part that blew me away is all the people who said: ‘Why didn't you do this sooner?’”

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