Many of the arguments presented for why a wirehouse broker might want to become a ‘breakaway’ broker and adopt the independent RIA model focus on the softer issues: you have more control over your brand, you can exercise your entrepreneurial spirit, and you get to pick which products to use on behalf of your clients.
Of course, there are also admitted benefits on the harder side of the equation. You won’t have to share your revenue with an employer and you’re building equity in a business that can not only provide you with a living now but may well build in value for when you decide to exit the business.
The latest in a series of Fidelity research reports on the benefits of RIA independence considers another important issue: taxes. Polling five different experts on the topic, Fidelity addresses the tax and succession planning issues that prospective breakaways should consider in its latest "Options for Independence" white paper, released June 6.
(Fidelity says it will provide the paper to advisors who register at this Fidelity site.)
While careful to point out that the opinions in the paper are the experts’, not Fidelity’s, the conclusion is clear: including relatively favorable tax treatment, advisors in fact can make more money as an RIA while operating the company and also upon and after selling their companies.
The impetus for the white paper, said Fidelity IWS President Mike Durbin (left) in a Monday interview, came from talking to clients and prospective clients in the “breakaway pool,” who are “all trying to maximize the after-tax, intergenerational value of their book of business.” Durbin says that when those wirehouse brokers start to think about how to accomplish that goal, “they immediately find attractive the notion of being independent, and converting the value [in their book of business] from an income stream from an employer to long-term equity” in their own business.