Charting your Course to Independence

By Wendy Leung

5 key elements to consider before you start your journey

Many advisors dream of going independent for the freedom and flexibility to control their business, client service model and bottom line. What sometimes isn’t a part of this “dream” is the prospect of taking on the additional responsibilities that business ownership entails, while emptying your bank account to fund startup costs.

The good news is that you don’t have to abandon your dream of independence. An evolved landscape has answered the call—with a vast ecosystem of capital, support and resources available to help you succeed in living out your dream of independence.

Looking inward and gaining clarity on your goals in relation to these 5 key areas will help ensure that you’re headed down the path towards the version of independence that’s right for you.

1. Money

While the decision to go independent is typically about the long-term monetization of the business, there are still important short- and near-term financial considerations. These include how much deferred comp you may leave behind, your willingness and/or ability to fund the start-up costs of the business and the desire to “de-risk” the move by being paid an up-front deal. The good news is that there are independent models that address these concerns.

Independent broker dealers (or IBDs) like LPL Financial, Raymond James and Wells Fargo FiNet all pay substantial up-front cash and often offer additional funds via a working capital loan. While in the RIA hybrid space, there are options that pay strong up-front deals, as well as most of an advisor’s start-up costs, thereby limiting initial out of pocket costs. Plus, there are also options that allow an advisor to monetize the business by selling a portion of equity or revenue.

2. Support

The notion of taking on the task of managing compliance, technology, HR and finance is often what stops advisors from going independent. The good news is that the industry has evolved to provide support both at launch and on an ongoing basis, to free an advisor up to focus on clients.

For example, in the past, aligning with an OSJ was a solution primarily for offloading compliance. Doing so today can include support for technology, middle- and back-office, marketing and more. In the RIA space, there is a growing category of service providers that offer professional management via access to an outsourced C-suite, plus ongoing support for compliance, technology, marketing and often middle- and back-office operations.

3. Community

Some advisors rule out independence because they feel that there is a lack of community; that essentially, they’d be setting up shop “alone.” They worry about the optics of a solo practice, the continuity of impeccable client service and how they will replace their firm’s thought leadership on investments. The reality is that being independent doesn’t mean being “one man on an island.”

Service providers like Dynasty Financial Partners and Sanctuary Wealth were founded by ex-wirehouse managers who recognized that independent advisors still need a certain level of community to thrive. Advisors can also tuck into an established independent firm or consider a quasi-independent model that offers an engaging and fully supported environment. And of course, there is always the option to build your own community via targeted recruiting and acquisition.

4. Goals

Knowing whether you are looking to build a business that you can sell for maximum value at the end of the day or an efficient and profitable lifestyle practice where you can earn a comfortable living is critical.

Those focused on maximum enterprise value often choose the RIA path for the potential of higher multiples than comparable firms in the IBD space, which are viewed as limited, restricted by the platform and compliance rules of the broker dealer. RIAs can be multi-custodial, which increases the pool of acquisition targets and the opportunity for meaningful inorganic growth.

5. Freedom

It is equally important to assess your desire for total freedom and control. An RIA has complete control, including the ability to “shop the Street” for the best prices and products, the freedom to use marketing and social media unencumbered, and the ability to engage in outside business practices. It’s the path for those who want the ability to be a true fiduciary, completely unrestricted and unconflicted.

Conversely in the IBD space, an advisor must adhere to the compliance guidelines and investment menu established by the IBD. Yet it’s an attractive option for advisors who prefer the turnkey platform, with operational, practice management and recruiting support, and ultimately the protection that comes from the IBD’s compliance guardrails.

The independent landscape has evolved dramatically, offering advisors greater choice than ever before.  To ensure that this wide array of options doesn’t prove overwhelming, advisors should consider the five key drivers identified above before embarking on due diligence. Take time to think through and envision your ideal scenario. This will be time well spent and help to create a roadmap for identifying the right independent model for you.