Three Advisors, Three Stories

Louis Berger, Washington Square Capital Management

When Louis Berger and his partner founded their RIA, Washington Square Capital Management, in New York City in 2009, they had to adjust their mindset.

“You go from being an employee of a major firm of 70,000 people to being a small business owner,” says Berger, who hooked up with Charles Schwab after leaving UBS Financial Services. “The psychology is completely different. You’re used to going through a chain of command, getting expenses approved or expensing. Suddenly, you’re writing the checks. All these expenses do add up.”

Berger took a hard look at projected fixed costs before making the jump. Here’s what the partners spent to start up: $10,000 legal fees; $2,200 a month for an executive office suite shared with other firms that includes a reception area, kitchen, conference rooms, phones, utilities, Internet and copier; $2,000 a year for a compliance consultant; $3,500 a year for a CPA who does the firm’s taxes; $2,000 for additional office furnishings (a couch, TV, lamps, filing cabinets, book cases and fridge); $5,500 a year for Morningstar Advisor software. Berger’s partner, by the way, designed the firm’s website.

Three years on, the firm, with $27 million under management, has retained 80% of its former clients. It was profitable within its first year.

 Jon Wakely, PW Global Advisors

As Jon Wakely, a partner in Boston-based PW Global Advisors quickly learned, the cost of legal and compliance consulting represents the biggest hit when an independent advisor sets up shot.

Wakely suggests setting aside $10,000 to $15,000 for that major expense. When Wakely formed PW in 2008, after leaving Merrill, the firm spent $10,800 the first year alone on compliance. Wakely, who custodies with TD Ameritrade, also recommends choosing a shared office suite, as he did.

“It got us a far better address in the financial district than we could have had without it,” says Wakely, whose firm currently manages $135 million in assets. “You’re a presence Day One. You don’t have to go out and buy furniture, you have an instant receptionist, access to conference rooms and videoconferencing and an Internet connection. And in this day and age, with almost everything Web-based, you don’t have to go out and spend tens of thousands of dollars on technology.” Their real estate cost that first year: $1,500 a month.