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Transitions (II): The Pre-Independence Checklist for Wirehouse Advisors

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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.

“There’s no prescription for how to hire the dream employee, but a thorough evaluation can maximize your chances,” he notes.

Assess your patience.

Going independent does not typically provide a quick payoff. Although the advantages may be heavily touted, after you add up your costs, the margins may be tighter than you expected. 

While it’s certainly possible to create a very successful independent firm, Langdon tells advisors not be seduced by images of immediate ultra-high pay.

“It’s the long-term value that you can build in your own business and the net amount that flows through to you that matters,” he says.

“No matter how much money you may eventually make, keep in mind that it may not come right away,” Langdon explains. “Therefore, in order to pay rent and salaries and buy furniture and computers, you need savings to keep the firm going for 8 to 12 months until the income starts predictably rolling in.”

Prepare your family.

Even though your move may be fueled by a desire to reduce the time you spend at the office, in the short-term, you’ll find yourself working longer hours.

“So make sure you get buy-in from your family,” Langdon says. “They’ll be seeing less of you in the initial months, but you will still want to rely on your family’s support.”

Being honest about the demands of the early months can help smooth your transition at the office and on the homefront.

Acknowledge what you’ll lose.

It’s human nature to focus on the benefits of going independent, but Brackett says your success depends on realizing that you are also giving up something. “Many advisors have accepted retention money to stay at a particular broker/dealer or,” he says, “they may have joined a particular firm because of the name recognition and the publicity they receive. It’s important to understand that, as an independent advisor, you will need to build name recognition on your own and maybe you won’t be able to afford the advertising and PR you once took for granted.”

Because it’stough to build a strong brand presence and service your clients at the same time, Langdon suggests working with a professional marketing and branding firm.

“Having visible alliances with a respected custodian such as TD Ameritrade Institutional, Schwab Advisor Services, Fidelity Institutional or Pershing Advisor Solutions also helps. These larger, more established custodians will also have practice management consultants on staff who can help you with business development, staffing and operational decisions,” he notes.

Stay open to compromise.

It doesn’t have to be all or nothing.

Rather than go totally independent, another way to enjoy instant credibility and operational efficiencies would be to join an existing independent firm with a national footprint, such as Focus Financial, Financial Focus, Fusion Financial Network, Lindner Capital Advisors, Ensemble Financial Services, or FocusPoint Solutions.

Alternatively, many independent broker/dealers, such as LPL Financial, Securities America, Financial Network, Commonwealth, Raymond James and Cambridge, have a long tradition of helping regional directors and branch managers who hold FINRA Registered Principal licenses with their firms develop highly-professional and efficient models to make the transition from wirehouse to the independent business model less stressful.

Many of these regional-director-led operations, such as BAR Financial (part of the Financial Network/Cetera organization) or Integrated Financial Group (a large branch office associated with Securities America) work and feel like a mini-broker/dealer within a larger broker-dealer.

Interestingly, while mistrust of all financial institutions runs high in today’s post-Madoff era, this situation has nullified what has traditionally been one of advisors’ biggest fears of going independent — the loss of the big corporate brand name.

“Throwing off the brand name is actually a major advantage,” says Langdon.

“If you’ve been with a big brokerage, you’re carrying the sins of your parent with you,” he explains. “The public today is dubious about many formerly gilt-edged financial companies. Consumers see them as the bad guys, the ones who caused the recession. Once you go independent, you don’t have a tarnished image — and that’s a good marketing advantage.”

Brackett notes that working for yourself will give you more energy and make you better at forging the client relationships that are so important to the long-term health of your firm

“Yes, it’s important to figure out where to office and when to hire,” he says. “But buying the stuff is the easy part. The hard part is doing the groundwork for working through a life-changing decision. If you dedicate that time upfront, you will be better able to manage the stress of those initial months.” 


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