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Personal Economics Advisors Must Consider When Thinking of Going Independent


Personal Economics Advisors Must Consider When Thinking of Going Independent

How much fun it is to dream about what you would do if there were no limitations to consider.

Every day, I talk with financial advisors who finish the sentence “in a perfect world” with the words “go independent” because they yearn for greater freedom, flexibility and control, and want to eliminate bureaucracy from their life’s work.

These are the folks that have entrepreneurial DNA, love the idea of creating a legacy and building a sustainable enterprise. And so, they begin to explore what going independent really means by looking at different models and getting educated about what it takes to be a successful business owner.

We seem to be reading more and more about yet another corner office team leaving the employee-model behind and either launching their own RIA or joining a quasi-independent firm like HighTower. To be sure, after much due diligence, a growing percentage of former employee advisors are choosing to break away from W-2 status because they realize that everything about independence is appealing to them: The freedom they will have, the superior long term economics, the ability to create a customized model that will allow them to service their clients in a more bespoke fashion, and the ability to act as a true fiduciary.

But, there are also a good percentage of advisors currently practicing in the broker dealer world who are intrigued by the notion of independence, yet in the end, realize that they just aren’t as entrepreneurial as they might have imagined.

This is usually true for one of two reasons:

  1. The desire to monetize their business in the short-term is greater than the value they place on the long-term economics of business ownership. Said another way: they aren’t willing to take the leap of faith that going independent requires, being willing to give up big up-front money in return for building equity.
  2. What it takes to be a good advisor doesn’t necessarily equate to being a good business owner, so once they realize what’s involved in managing an independent practice, they decide they are better suited for life as an employee.

So what do these advisors wind up doing—the ones who are sure that their current firm is no longer the right one? What do they do if they crave more freedom and flexibility than they have now?

One of four things happens:

  1. They move to another major firm for the next nine years (the length of the forgivable loan attached to a transition package) and figure they are young enough to go independent later on. (This allows an advisor to monetize now for maximum short-term gain and then move later to satisfy their as yet unfulfilled entrepreneurial spirit.)
  2. They decide to ditch the notion of independence altogether, realizing that the name brand and turnkey support of a big firm is essential to them.
  3. They choose to stay put, making peace with what’s been frustrating them and deciding that, in fact, the grass wasn’t any greener elsewhere.
  4. They choose to move to another firm (wirehouse, regional or boutique). They know that there is leverage in being recruited and they will be paid an outsized transition package and be given things like a greater expense budget and more support. And they will work with the firm to craft a value proposition that can be shared with clients to let them know that the move is being made in order to better serve them.

Unfortunately, there is no such thing as a “perfect world”—yet that doesn’t mean you shouldn’t consider and pursue options that might be “perfect enough”. 

Regardless of whether an advisor goes independent or chooses to remain an employee, personal economics always need to be considered, along with one’s own motivation for change and risk tolerance. And only then can one define – and live in – their own version of a perfect world.

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