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Wirehouse and other advisors with an itch to open their own independent firm beware: The move can be rewarding but if (and only if) it’s done correctly, according to several breakaway specialists. 

The number of advisor teams seeking independence — or breaking away from traditional firms — is at record levels, says Pablo Bizjack, director of business development for BNY Mellon’s Pershing Advisor Solutions. 

Bizjack recently led a webcast on this subject with MarketCounsel founder Brian Hamburger and PFI Advisors CEO Matt Sonnen.

COVID-19 Climate 

What are the pros and cons of starting a firm in today’s shelter-in-place world? 

On the one hand, it’s a perfect time, says Sonnen, because an advisor can start setting up the business from home. 

On the other, he warns, advisors need to “look as professional as possible” and have their infrastructure well in place before moving clients. 

If an advisor is running a new firm out of the basement, a former employer could “jump on that” as a negative, says Sonnen.

As Hamburger explained: “You can make calls during the day, but you have a duty of loyalty to [the current] employer [and], … you have one shot to get this right. Your employer will look for any weakness.”

Practicalities to Consider

One important issue, says Sonnen, is how advisors can access the products and services advisors have offered clients throughout their career once they go independent.

“I say, ‘Stop!’ Before we go into any of that, you need to go talk to an attorney and look at the specifics of your employment contract and the specifics of your firm,” Sonnen explained.

In addition, be sure to “know the lay of the land on how you can behave over the next couple months, as you’ll be living this dual life of taking care of your clients during the day and building your RIA at night,” he said.

Hamburger agrees, pointing out that it’s no surprise someone “would want to go to the sexy side first and bypass the attorney, but [we] need to make sure they [make the change] safely.” 

The attorney, who works with advisors with broker-dealers both in and out of the Protocol for Broker Recruiting (which Morgan Stanley and UBS left two years ago), said it’s important to determine “what are the firm’s policies and what is state law.” 

Next Steps to Take

From there, Hamburger works with advisors to formulate a strategy. This includes setting up registration and client agreements, as well as “work on changing a mindset from employee to business owner … and how to assume risk. It’s not unlike their conversations with their own clients,” he said

Ideally an advisor should hire a project manager from the outside, according to Sonnen. That individual can talk to vendors and do other key tasks, such as finalizing employee benefits.

Four other high-level tasks that must be done, he says, are:

1. Setting up office infrastructure: getting space, furniture, insurance, logo, website, etc.

2. Picking a custodian: This includes determining what products to use and where to get lending help.

3. Transitioning clients: Getting current clients moved as quickly as possible, with all documentation (ideally) done in the first round.

4. Getting paid: Set up a system that has wealth management agreement, write down fees and billing. “Ironically, [what] always gets forgotten is setting up billing,” Sonnen said.

Technology Choices

Another set of decisions concerns what technology solutions to use. 

Independent advisors “now have so many choices it’s overwhelming,” explained Sonnen. Advisors should pick their custodian first, reporting process second and then determine how to best integrate these two solutions.

“The crux of independence [today] is that someone can now pick and choose service providers,” said Hamburger. Though picking from these offerings is like getting on a “seven-lane ramp, some choices might be better than others but all will get you there,” the attorney added.

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