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The Good, the Bad, and the Avoidable of Breaking Away


The Good, the Bad, and the Avoidable of Breaking Away

Written by: Folio Institutional

You’ve decided to break away and start your own firm, or join an existing advisory firm. It’s an exciting time and with it comes autonomy, the ability to better tailor your client services, as well as the opportunity to keep more of what you earn. But it’s also a challenging time if you’re not adequately prepared for the inherent complexities of moving your entire practice. Here are some common potential pitfalls we’ve heard about from advisors who have made the leap, and how to avoid them.

Thinking you’ll have to go it alone

Today there are numerous resources, from consultants specializing in breakaway transitions to “self-help” guides published by leading broker-dealers, to dedicated teams of professionals at those same broker-dealers who can help make the transition easier.

Assuming your clients will follow you

What’s the point of breaking away if you don’t retain your clients? Making sure you do so, to the extent your agreement with your current firm allows, is the result of careful planning and communications. Many advisors understandably become consumed with the “nuts and bolts” of breaking away, like legal, tech, and registration matters, and client communications becomes an afterthought. So be sure you’re planning for what, when, and how you communicate your plans to your clients, and perhaps even consider hiring a professional communications firm to handle it all.

Not doing enough due diligence on your custodian

Many custodians aren’t interested in smaller RIA firms, with some even going so far as to boast about it or “wall off” certain services depending on the size of the advisor’s AUM. In addition to serving large, well-established practices and complex enterprises, a custodian should be willing to accommodate even a small practice. This is an area where you’ll want to do a lot of digging before you select a custodian.

Overcomplicating your business model

Some custodians like Folio offer a turnkey approach that goes beyond the basics by integrating custodial services with online portfolio management, trading, and brokerage. Services like performance reporting, automated tax management tools, and automated billing are also integrated to further streamline your practice. This approach can help you simplify your business model and avoid the added expense of working with multiple vendors.

Assuming fees won’t be an issue

Even with a level-fee based compensation structure, you still need to be concerned with keeping fees low. Account maintenance fees, trading costs, and third-party vendor expenses erode your bottom line and that of your client’s. Progressive broker-dealers and custodians offer all-inclusive fees that provide access to many of the services that others make you purchase from third parties, and also provide commission-free trading at both the individual security and portfolio level.

The moment you decide you’re ready to break away is a big one. Choosing the right partners to help you through it and to maintain your business model is one of the most important business decisions you’ll make, and one that will potentially have far-reaching consequences for your book of business, growth plans, and client well-being.

Want to know more about the dos and don’ts of breaking away and what Folio can bring to the table

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