From the June 2014 issue of Research Magazine • Subscribe!

Reluctant to Go Indie?

So much ink has been spilled on the question of whether a financial advisor should go independent, so much jawboning by recruiters trying to convince advisors about the merits of doing so.

In both cases, most of the emphasis is on the benefits of making a move, especially the financial benefits (i.e., higher payouts) as well as business models offering increased freedom and A to Z support in technology, products, research, marketing, business coaching and more.

With all those benefits, the number of wirehouse advisors should now be approaching zero. Yet year after year, it is only a relatively small proportion of advisors who make the move.

And, assuming for argument's sake that such a move is generally advantageous, the reason for the reluctance should not be hard to understand. Change is very difficult.

As Ellen Uzelac's June cover story illustrates, the move to independence is experienced by the advisor more as a “leap of faith” than as an arithmetic response to a cost-benefit analysis.

Strategist Barnaby Riedel, who has experience designing a broker-dealer recruiting campaign, says of those who have made the move: “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?”

So waving back-of-the-envelope calculations estimating how much more an advisor could take home is not likely to persuade an advisor terrified about losing key clients or making payroll during rough patches. Even if convinced the move will be profitable, concerns about how a move would affect one's family might loom larger than a more generous payout.

And this psychological underpinning should hardly surprise advisors who daily deal with their clients’ varied financial neuroses. Behavioral finance teaches, for example, that investors feel the pain of loss some two and a half times greater than the joy of gain.

If anything close to that ratio holds in the case of going independent, there is no payout on offer great enough to compensate for the risks of loss a wirehouse advisor might feel. It should stand to reason that that advisor must already be experiencing a strong sense that his current arrangement is a liability.

But short of experiencing a sort of rock bottom that compels an unplanned move, advisors would do well to assess what is in their clients’ and their best interests, then plan and prepare to arrive at that destination not because or until it is “doable” but because it's the right thing to do.

The fact of the matter is that change is hard. It takes courage. But it also takes time, thought—reframing is often essential—planning and preparing through incremental actions.

Michael Minter, a Tampa, Fla., advisor is particularly eloquent about the challenge of going independent. I’ll quote just part of what he says:

“The thought of being on your own, on an island…. So many thoughts, so many worries…. At the end of the day, those that … 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.”

Reprints Discuss this story
This is where the comments go.