While many advisors are drawn to the freedom and control that independence offers, there are those for whom it may not be the “right” path.
The 2020 Advisor Movement Study from Fidelity indicated that nearly two-thirds of all advisors who moved in the last 5 years left employee models for the independent space.
And it’s a trend that just keeps on growing—along with the cottage industry born to support these courageous breakaways.
While the diaspora towards independence is undeniable, the reality is that for all the control and freedom to create an enterprise it affords an advisor, it’s a path that many “feel” is not right for them.
And that’s OK, provided your “feeling” is rooted in facts and knowledge of the space and clarity around your goals and vision.
To better understand why some advisors feel that independence isn’t right for them means taking a closer look at 10 common reasons—and identifying any misperceptions that may exist.
1. “I’m not an entrepreneur.”
This is probably the most common reason advisors choose not to go independent—they simply feel they lack the “entrepreneurial DNA.” And if someone is self-aware enough to realize that being a business owner isn’t their passion, then they should follow that instinct. Because even as the industry landscape has expanded with options that offer varying levels of support and eliminates some of the heavy-lift of setting up a business and the day-to-day management it requires, the buck stops with the leader. That is, “someone” still needs to drive the vision – and ultimate success – of the firm.
2. “I have too much in unvested deferred comp to consider independence.”
We hear this often from advisors—and it’s a valid concern. While a leap to independence already requires a good level of risk tolerance and even more faith in yourself and your team, the bar is set much higher when you stand to leave a good amount on the table. It’s important to look closely at what you owe and the potential of a higher payout—if you are willing to be long-term greedy, and if you have a long enough runway to replace what you will leave behind.
3. “My book is not portable.”
Much like number two, any move – independence or otherwise – requires both risk tolerance and faith. And if you stand to leave too much behind that you’re not confident you can replace, then it likely makes sense to stay put. However, statistics show that most advisors who move wind up with an 80-90% portability rate—based upon the clients they want to move with them. These advisors make a “strategic decision” to leave some business behind – that is, certain book holdings or a subset of clients that may not align with their future business goals – essentially, choosing to “shrink to grow” and betting on long-term gains to make up for any short-term losses.
4. “I don’t want to wait for a big payday.”
It’s hard to pass up what could be a recruitment package from another firm in excess of 300%—but those deals come with strings attached and likely offer little more control than what you have now. Yet, for those who are enterprise builders or in extreme growth mode, the long-term potential of monetizing real enterprise value may be well worth the wait.
5. “I’m not sure my team is ‘right’ for independence.”
If you lack confidence in the team you would transition with, it’s wise to stop and reassess where the gaps are. You can then choose to stay put until you are able to fill those gaps in a meaningful way or you can opt to go independent and either rebuild the team or consider outsourcing. Virtually any function, from compliance to administrative to operations is available from a wide array of service providers and consultants born just for this purpose.
6. “There are just too many moving parts.”
The truth of the matter is many advisors are more comfortable with the “all-under-one-roof” approach of the big firms. A thorough due diligence process that starts with assessing what aspects of your current firm you prize the most and would want to replicate, may guide you to either stay put because you determined there’s nothing better, or toward options that may require some flexibility but will yield a better result.
7. It sounds too risky. How can I accept the financial risk and the concern that my clients won’t be as well protected as they are at a brokerage firm?”
There is risk in any choice you make—even staying put as things change at your firm. Surely, there is risk in becoming a business owner: risk that you won’t succeed, that you will lose a big client , or that the market will tank. But, the worry that your clients won’t be financially protected is unfounded. The reality is that an RIA has a defined set of compliance policies that are monitored and enforced by the Chief Compliance Officer, a third-party compliance firm, or the principal of the firm. And, there are many checks and balances in place with the firm’s third-party custodian. Schwab, Fidelity, Pershing and the like absorb much of the liability and risk, and you, as business owner, have Errors & Omissions insurance to protect you further.
8. “Right now, everything is done for me. Why change that?”
Sure, it’s nice to be a part of a turnkey environment—with a well-appointed office, coffee and snacks in the breakroom, technology that is managed, and lights that are on when you walk in. Why change that? There are many who would choose not to. Despite the imperfections in the status quo, things may be more than good enough. But, if you’re someone who’s excited by the opportunity to build and grow your own firm, yet prefers to “have things done for you,” you can choose an independent platform provider to manage both the transition and ongoing business operations, or opt for a supported model which provides a more turnkey environment. Where there’s a will there’s a way.
9. “My clients won’t be happy if I leave a brand name for an unknown.”
This is a common concern, especially for those who serve high net worth and institutional clients. But, this concern is usually more from the advisor than from their clients. Most clients build a relationship with their advisor, not the firm they work for, and as such, they’re far less attached to the “big brand” than many advisors realize. What’s of paramount importance to clients is that their advisor will be able to continue to offer them customized and best-in-class solutions.
Plus, client assets are custodied with third-party custodians—recognizable brands unto themselves that independent advisors often leverage.
10. “I’m just too old to go independent.”
If you believe you don’t have enough of a runway to retirement, the energy or desire to build an independent enterprise, you shouldn’t do it. While it’s true that the economics of independence make more sense for someone who has 10, 20 or 30 years left than it does for someone with two or three years, the reality is that it’s far more about desire and entrepreneurial energy than it is about chronology. We know plenty of advisors who’ve made the leap when their peers were considering retirement.
The decision to go independent is not a small one. You either want it because it’s soulful, or you don’t. But if you are making the decision based on misperceptions – of the space itself or your own goals – then it might make sense to take some time to get educated and explore.
Ultimately, it all comes down to how you want to live your business life. That is, while you may have the skills to be a successful business owner, the reality is you may not want to be. And that should be the real deciding factor.
As seen on Forbes.com