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Practice Management > Building Your Business

3 Steps for Going Indie in a Bear Market

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Even in the midst of a bear market, employee advisors are still on the move. Financial markets remain fragile, but many advisors are opening their own boutique wealth management firms, and their clients are following them. Flexibility and ownership are some of the benefits of making the leap.

Independence is a decision that employee advisors don’t take lightly, as the Federal Reserve raises interest rates at the fastest pace in decades. There’s the tough decision to say goodbye to longtime colleagues — and giving up the convenience that comes with belonging to a larger firm.

For advisors, going independent means shouldering more responsibilities in a less structured work environment. Independence isn’t for every employee advisor, but for every advisor ready to take the plunge, a checklist could come in handy before the big move.

What to Consider in a Down Market.

1. First, prioritize your own needs. Ask yourself: “Do I want to be independent?” Owning an independent firm has a number of advantages, including greater flexibility in serving clients and more control.

Much like owning a house versus renting the same property, advisors who own their business suddenly have a range of options.  If you are the type of person who likes making the decisions, it can be an amazing experience.

A deeper question is, “Do I want to be independent by myself?”  If you are leaning toward independence, understand that you don’t need to fly solo — many independent broker-dealers have existing offices that are looking to add independent advisors to their locations.

Whether you want to be the one that builds the vision or someone that joins an established one, you could reap the rewards of business ownership.

2. The next step is to determine whether the economics of independence make sense in the current bear market. You need to make sure the delta is worth it beforehand.

If your book has been declining and you’re concerned about fixed costs and the future of your variable income during a downturn, then it may be best for you to remain an employee advisor, or transfer to a thriving W-2 model that can support you.

Advisors who stand to organically grow their business year after year, irrespective of markets, are usually best positioned to capitalize on their growth in the independent channel.

How to Figure Out If You’re Really Ready

If sweaty palms and butterflies in your stomach are the reactions you have to the thought of getting up from your desk and walking out of your building to the empty lot across the street to start your own practice, then independence is not for you.

But if the opportunity to own that same empty lot, and devise your firm’s unique compensation structure while keeping more of your income, holds a certain kind of appeal, then it means you have a vision about taking ownership of your practice.

Hanging professional signage on your office door or outside your building sounds right to you, because being an independent and visionary advisor also means you can finally have control over all local decisions.

3. This brings us to the third step: Let your experience work for you. 

The employee advisor most likely to succeed in independence has, on average, built a successful 20-year career. Often, they are looking for a challenge and want to take their business to the next level — not just growing a strong practice, but now building a business and legacy.

The current bear market is a non-variable: Advisors know bull markets have outnumbered the bear markets historically, and are confident their business will prevail in the long run.

Experience also means you know what you need to make success happen as an independent advisor. If you are seeking a supportive structure that will help you build out your team or provide you with a branch environment, then find a firm that delivers an array of resources.  A great firm should support your vision of independence, and what you’re trying to accomplish.

Your Greatest Foe

Data from Cerulli Associates in 2018 showed independent broker-dealers servicing boutique wealth managers witnessed a five-year compound annual growth rate in assets of 11%, —double that of wirehouses, with assets of IBDs rising to $3.5 trillion, up from $2.8 trillion across a five-year period.

A survey released this year of the top 25 independent broker-dealers indicated top IBDs reported a record $33.9 billion in revenue in 2021, a 24.7% increase over 2020, according to InvestmentNews

These indicators are encouraging signs for the future of the IBD channel and entrepreneurship in wealth management. The greatest hurdle for advisors who fulfill the requirements for independence on the personal and professional level, however, is not other business models, including the wirehouse — it’s inertia.

Many advisors postpone the switch — letting it happen when they finally arrive within five to 10 years of retirement, a move that doesn’t set the table for the best possible succession.

Advisors and what they’ve built over decades of hard work deserve a better outcome, including higher net payouts and better tax treatment that accompany long-term business ownership.

Their success is defined by service and tending to the financial health of others.  In specific scenarios, by opting for greater autonomy, these advisors can finally bring the same level of care to their practice that they deliver every day to their clients — even in a bear market.


Tim Boostrom is Managing Director of Business Development at Stifel Independent Advisors in St. Louis, Missouri.

(Image: Shutterstock) 


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