Napoleon Bonaparte is famous for declaring, “Nothing is more difficult, and therefore more precious, than to be able to decide.”
If you’re contemplating going independent, the recent recession and the uncertainty of the financial markets undoubtedly further complicate what has traditionally been one of the industry’s most difficult business decisions.
Like any major move you’ve made in your life, preparing to leave the wirehouse world to go independent involves a long punch list.
You’ll have to choose a business model — which could include hanging your FINRA licenses with a broker/dealer and working as an independent contractor, setting up your own broker/dealer or RIA firm, or joining an existing RIA firm or broker/dealer branch office.
You’ll need to find an office and hire staff.
You’ll also need a plan for managing the legal ramifications of your transition.
Yet, experts say it is easier to make progress with that daunting to-do list if you first gain a little psychological insight.
“Before you sign a contract, do some soul searching,” advises Randal Langdon, president of Lindner Capital Advisors, who has been through the process himself. Lindner Capital Advisors is an Atlanta-based RIA firm that serves a select group of clients and also offers third-party asset management programs to independent financial advisors.
“Ask yourself if you have an entrepreneurial mindset,” Langdon says. “Ask yourself if you’re comfortable running a small business, with all that entails, from changing light bulbs to picking up your own mail.”
Seven Must-Do Items
Before you jump from the wirehouse ship, you first should take a long look in the mirror. These seven steps can help guide your assessment.
Define your value proposition.
Ask yourself why you are making a move, advises John Brackett, the managing principal responsible for managing the independent representative channel, advisor recruiting, and mergers and acquisitions activity for BAR Financial, LLC.
“In today’s market, a lot of advisors are contemplating going independent because that’s the opportunity they are reading about in the industry publications,” he says.
“Rather than be swayed by the headlines, it’s essential to dig a little deeper to define the value you will establish in the transition. For instance, are you most interested in controlling your hours or offering additional products to better serve clients? What’s the motivating factor? That’s what you want to hinge your decision on,” Brackett explains.
Look at your practice from your clients’ perspective.
While additional freedom and increased income are clear benefits in the independent world, it’s essential that you also identify benefits for your client in your new practice environment.
“Remember, you need buy-in from your clients to be successful in your new firm,” advises Langdon.
“Most advisors assume that their clients will follow them, but clients can be nervous about moving into an unknown situation. When they ask you about reasons for your move, you need to mention the additional products or the extra time you’ll have available to work with them,” he shares. “And because not all of your clients will make the move right away, you need to continue to communicate about the additional value you are adding.”
Re-evaluate your team.
You may be comfortable with your current team, but bringing everyone along with you from the wirehouse may not always be the right choice.
“Your move necessitates viewing your partners and associates in a new light,” says Mark Tibergien, who, as CEO of Pershing Advisor Solutions, enjoys a unique vantage point to observe the growth and change in the independent channel.
“Often the greatest success comes to those who go independent in teams, but teams can also become dysfunctional,” Tibergien adds. “You might say, ‘Hey, let’s get into the foxhole together,’ but your associates’ viewpoint may evolve to, ‘Sure, I agreed to the foxhole, but I didn’t think there was going to be any shooting!’”
Therefore, before extending a job offer, Tibergien says you need to analyze your team’s skills and temperaments to discern whether they are a good match for your new your business model.