Can You Succeed as an Independent Advisor?
Recently, I spoke with a friend who left a large bank for another large banking/brokerage operation. He said he felt like he needed to be aligned with a “name-brand firm,” so he chose to move to well-known company. At one time, I felt exactly the same. At one time, I wondered how anyone could ever make it as an independent. I could envision the client saying “You work where?…Never heard of it.” I thought it would be extremely difficult to gain clients and make a good living unless I had the support of a big-box firm behind me.
Now, I hold an entirely different view. I recognize that, to some clients, a “brand name” is important and always will be. I also know that to some, an independent advisor is far preferable. Though I don’t have any stats to back this up, I suspect the independent advisor has gained market share over the past decade.
Why would anyone want to work with an independent advisor? I suppose the answer lies in the question itself. Independent! Why would anyone want to work with an advisor who didn’t have to answer to corporate management or stockholders who clearly have conflicting interests? I won’t even answer that one.
Yes, life as an independent is as good as it gets. Freedom, control over your business, building equity in your company, no political posturing as is found in large corporations. Just you and your dreams, and your clients and their dreams. Now can anyone tell me the downside of that?
This week, we continued to roll out our eVault. (By the way, “eVault” is not our trade name, in fact it is already being used by another company.) It is our way to help clients simplify their lives and when you can do that, you will do well. To learn more about my electronic document storage system, please read my recent post here.
I am also updating my financial planning tool to include a few pages on exactly how a client’s estate would be distributed in the event of death. It will also incorporate past taxable gifts so they can easily see if they need to reduce the inheritance of any heir (assuming they want to be as fair as possible).
Yes, life as an independent is great. Now I ask you, could you create an eVault or modify your financial planning tool if you worked for a large corporate conglomerate?
I rest my case.
I’m considering becoming an independent advisor, What would be the first thing I should do? How would you go about choosing a broker dealer? or would you head straight for the RIA?
Hi Don,
The first thing I would do is look at my book (assuming you have a book now) and estimate how many clients would stay with you. Then, calculate the amount of revenue on those assets using an assumed 1.0% fee. If that would give you enough income, then the RIA route would make sense, at least financially. In my opinion, it’s best to have some experience under your belt before choosing the RIA route.
Good luck!
Mike,
After what we went through last year with the bankruptcies of Lehman and Bear Stearns and bailouts of AIG, why would anyone want to work with anyone but an independent advisory firm? I think potential clients see this and are eager to work with trustworthy independent firms.
The problem is proving this trust to individuals or families that are new relationships. Further, advisors, in my opinion, need to make sure their businesses are adequately differentiated from the big guys and then they need to celebrate the fact that we are boutique operations.
Hi Jeff,
Ditto! My point exactly.
Mike:
I have been thinking seriously, for over a year, about going independent. Two of my concerns are that I work mostly with smaller clients (under $250,000 in assets per client) and I am intimidated by the regulatory/audit issues of being an RIA. First, do you think it is possible for someone who works with more middle/upper middle income clients to transition to an independent (most of my clients would have difficulty paying $2000+ fees) and can you reach some level of independence by affiliating with a b/d as an IAR or do you have to go RIA?
Thanks.
David,
I think it may be best for you to align with a b/d simply because it would be hard to make a living as an RIA, in a fee-only structure, with smaller clients. Just my opinion.