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The Business of Breaking Away

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The process of going independent can be more time consuming than moving to another wirehouse, due to additional due diligence and logistical execution.  So, it is important to make the journey to independence simpler, more turnkey and less threatening.

Among the first issues to tackle: Access to capital

Every enterprise has start-up costs, and an independent financial practice is no exception. Generally, the transition takes from three to six months. So advisors need to determine total expenses during that period along with the first year of operation to plan accordingly.  Costs and expenses become so much more important for advisors running their own business.  Things like managing cash flow and a myriad of other details suddenly become critical. Watching budgets and careful spending are important. An accountant or bookkeeper will prove to be an invaluable resource.

Primary among cost needs can be how to satisfy a promissory note from an existing firm, and to do it with cost-effective financing. The wrong moves will not only be costly and impede cash flow; they may impact or even dictate the timing of the break.  In some cases poor timing may needlessly leave deferred compensation on the table.

Advisors who owe their firms significant sums due to recruiting or retention packages generally have more to think about regarding timing when deciding if it makes financial sense to leave and repay an outstanding balance. Depending on which independent firm an advisor or team works with, there is a range of transition financing options: some firms provide none, others will pay significant sums of cash up front in exchange for an equity stake in your new firm, while others provide an array of non-equity customized loans and/or loan bonuses.  An experienced legal consultant will prove helpful in thinking through options, strong counsel is recommended before making any move.

Staffing is a key consideration – how many people on the existing team will be in the new firm and what role will they play?  Human capital can be one of the largest cost components.  Compensation structure will drive payroll and benefit costs, influencing immediate and future hiring plans.  Other costs are more mundane – office space, furniture, utilities, technology, etc., but are still a major part of the overall budget. There may also be the need for additional licensing and training, and of course taxes, insurance, and fees of all kinds; registrations, filings and more.  The sum of fixed and variable costs on an ongoing basis can average between 30%-40% of revenue.  Thus, net revenue margins run 60%-70% on average.  This average is based on larger RIAs, which leverage the benefits of scale.

Highlighting the cost realities is not to dissuade anyone, but it’s important to understand the cost and the commitment of running a business.  Starting out on financially sound footing with your long-term capital needs well planned means not having to worry about money, and that frees up teams to concentrate on transitioning relationships, servicing clients, and growing their business.

Business Structure and Legal Considerations

Creating a strong independent firm means starting with a solid business structure, and choosing the correct independent model to match an advisor’s entrepreneurial style. 

Will the new business be a sole proprietorship, partnership, corporation, or LLC?  That depends on how many owners there are the financial situation, tax implications, and goals of the principles.   Risks, liabilities, complexity, set-up/operating expenses, owner intra-relationship and taxes are all considerations.  No one choice suits everyone, so understanding each consideration and their collective interconnectivity is important.  The good news is that structure can be reexamined over time if necessary.

Whichever structure is chosen, all require advisors to also be competent business people and have some entrepreneurial characteristics.  It means extending a skill set beyond just product and technical knowledge to develop competencies in sales and marketing, technology, administration and others.

Broker Protocol

The Broker Protocol (officially, “The Protocol for Broker Recruiting”) establishes a framework of best practices for advisors who are moving firms or going independent in order to ensure smooth, conflict-free transitions, protect financial firm proprietary information and uphold client privacy.  It has become an industry standard, streamlining the process by eliminating a bulk of the uncertainty, costs and fear from both advisors and member firms.

Advisors and their counsel need to review existing employer agreements prepare resignation letters and develop client protocol lists.  Non-compete clauses, ADVs and the due diligence around joining a B/D versus an RIA are just a few of the details involved.

In general, under the broker protocol, an advisor may be able take basic information such as; client names, and contact data, but not specific client information such as account and social security numbers, copies of statement or other documents.  More than that, it’s critical to only take the right clients’ info – to make sure the clients are those who are the best fit for the new firm.

Most hassles are related to outstanding loan balances, perceived client solicitation violations, and partnership entanglements.  A strong counsel will help you think through these important issues.

Knowing and observing the Broker Protocol most times avoids creating legal issues, confusing clients, and will ensure that privacy and confidentiality issues are addressed.  It is not a guarantee, however, so it is important to carefully consider all legal risks around the move.


There is a right way and a wrong way to go about the "go date," when it comes time to make the actual break, or resign.  As advisors well know, resignation in the financial industry has a lot of moving parts. It helps if the new firm is a member of the Broker Protocol. (If not, the joining process is fairly simple, but timing is important and the legal entity must be in existence before it happens.) The protocol only applies if and advisor is leaving one member firm and joining another.

The resignation is part of a two-phase process – Pre-Launch and Launch Day.  Pre-Launch takes place in the week and days ahead of the break, and is like the dress rehearsal before an opening.  All launch activities are planned and prepared, proper resourcing is in place, systems and technology are all beta tested and final reviews with the legal team are conducted.

On Launch Day, it’s important to diligently work through every step of the procedure, website launch, press release distribution, outgoing calls to key clients and setting up meetings and mapping and transferring of assets.

Client Transition Process

Now its day two of the launch, the new firm’s name and logo are on the door, the story is in the media, the website is up and it’s time to leverage all the advantages of independence on behalf of the firm’s clients.

While client and asset transition success varies on a case-by-case basis, according to a recent Fidelity/Cogent Research survey an estimated 86 percent of newly independent advisors said that all or most of their clients moved with them – and did it sooner rather than later.

It’s important to remember that one of the main traits clients seek in an advisor is the ability to make their financial lives easier.  To them, the transition process should be seamless and practically invisible. 

Choosing the right custodian is a key first step -- take the time to research the marketplace online, ask industry peers and contact firms directly.  A custodian is a key relationship that will be maintained for a long time, so finding the right one is worth the work.

Whenever possible, tap the resources of the existing custodial firm – that will simplify things enormously.  They are invested in the success and growth of the new firm, and are set up to handle the operational aspects of transferring client accounts, providing direction and support. Having paperwork correctly completed and organized will make it easy for clients to transfer accounts, and that will make it easier and faster to be up and running.

Shirl Penney is the founder of Dynasty Financial Partners, a firm which provides infrastructure and support services for independent investment advisor teams.

Read more:

Key Steps to Breaking Away

7 Essential Rules for Building Your Business


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