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Three Dastardly Myths About Going Independent

August 17, 2017

Given today’s regulatory environment, many advisors are evaluating their current broker-dealer relationship to determine if it is best suited for the long-term vision they have for their business. There’s a lot that goes into making a decision of this magnitude and advisors must rely on resources they perceive as reliable to make the best, most educated, decisions possible.

One of the most fundamental and oftentimes most challenging decisions an advisor will face in this process is whether or not their current channel for doing business -- wirehouse, bank, or the independent model -- is best suited to meet the needs of their practice. While each certainly has its pros and cons, in my discussions with numerous financial advisors over the years certain common perceptions and/or misperceptions about the independent model persist.

Misperception 1 – True or False: Your clients will only do business with you if you’re associated with a recognizable firm name.

False. We hear this objection regularly from advisors when asked if they have considered going to an independent model for their business. While those advisors may have been introduced to their clients by their respective firms, the clients’ relationship is with their advisor, not the organization.

Clients rely on the insights, expertise and familiarity their advisor has with their financial situation, not the broker-dealer or firm the advisor is affiliated with.

Misperception 2 – True or False: Independent advisors are on an island and have no support.

False. While the independent model promotes an entrepreneurial mindset, the assumption that you will have no access to any back-office operational or business development support is inaccurate. The ability to ‘plug in’ to this kind of support is readily available with many broker-dealers and OSJ groups offering these types of frontline support while letting you maintain your own brand identity.

But do your due diligence. This support varies from firm to firm and even from branch to branch within the broker-dealer. Identify those services most important to your practice and that will help narrow the universe of potential firm partners.

Misperception 3 – True or false: Your net payout at an independent firm is the same as anywhere else.

False. This is not necessarily the case; however, it can be. The cornerstone of the independent model is the freedom and latitude to run your business the best way you see fit. This is most readily apparent in the areas of office space and technology. In both areas, most independent broker-dealers afford their advisors the opportunity to select the office setting that works best for them. That may be leasing office space or a work-from-home option.

Technology is also another discretionary expense in many cases. While it is safe to say most, if not all, BDs have a core technology package that advisors are required to sign up for, technology platforms such as financial planning or document storage, among others, are considered discretionary expenses for most independent broker-dealers.

Traditionally, independent firms will have an approved list of vendors they let their advisors choose from if they are interested in doing so. By allowing this a la carte approach, the advisor then has the ability to select only those platforms essential to the operations of their business.

If you are considering transitioning over to the independent model, whether direct to the broker-dealer or through a local branch or OSJ group, ask the following questions:

  • What are the fixed costs associated with affiliation to the firm and of associating with a firm, branch or OSJ?
  • What costs are considered discretionary?
  • What type of back-office operational and marketing support will the firm/branch provide you?

Ask the firm to run a pro forma comparing your existing firm’s payout and expenses to what you would potentially move into with the new firm.

The independent model may or may not be best suited for your business. At the end of the day, you know what environment you will operate best in. However, if you are considering a change from the norm and have not previously explored the independent space, do so.

It may be the most rewarding due diligence you’ve ever done.