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Break away without breaking your business

Here's how to avoid the mistakes many financial advisors make when leaving big institutions

Independent advisors hear it all the time: it’s not easy to run a business. You need to find clients, develop an investment strategy, and churn out thoughtful content. And that is all before you can even set up a meeting. Behind the scenes, you’re also responsible for the paperwork and administrative tasks of keeping a business open. It’s stressful, and it’s hard. But as a growing number of newly independent advisors will attest, the ups far outweigh the downs. 

To help make your journey easier, we’ve outlined five common mistakes independent advisors should avoid. 

Not retaining a lawyer

When you go independent, you may not report to any one person, but there are still all kinds of rules and regulations that you must follow. Unfortunately, that means you’ll need to speak to a lawyer. 

First things first: Do you have a non-compete from your previous employer? It’s possible that some non-competes are effectively unenforceable; it’s also important to realize that some states have eliminated them.

Once you’ve handled non-competes, your lawyer’s work isn’t done. You’ll likely need assistance registering with the SEC, and you may need further advice  about establishing the correct systems for payroll, operations and compliance. Running an independent RIA, after all, requires you pick up tasks that an employee at a broker dealer or wirehouse would typically ignore. 

Expecting too much from your custodian

If you’ve worked for a large wirehouse or broker dealer, chances are that you’ve never had to set up your entire tech stack. If you don’t have prior experience assembling a modern toolset, you might expect that your chosen custodian will provide a majority of the technology necessary to do your job. That’s not the case

Although having a custodian is necessary,  much more is required to run a practice smoothly. Thankfully, the explosion of fintech solutions means that you have help for almost every need and type of practice. Think about your day-to-day schedule. Wouldn’t it be nice to have a tool that tackles all those frustrating tasks? Chances are, there are tools that, once set up, will make your daily work life significantly easier, and allow you to effectively grow your practice. 

Ignoring the broker protocol

No one wants to go independent on uncertain legal and moral footing, so it’s vital that you research the Broker Protocol and learn if your broker dealer is a signatory. Under the terms of the protocol, it states, “When RRs move from one firm to another and both firms are signatories to this protocol, they may take only the following account information: client name, address, phone number, email address, and account title of the clients that they serviced while at the firm.” Make sure you’re not breaking the rules and that you stay in good standing with the financial advisor community.

Sending the wrong messages to clients

Independence is daunting for a financial advisor. It’s also a challenge for clients, who may not understand what it means for them, why their advisor is leaving their firm, and what it means for the future of their relationship. 

Just as patients trust a family doctor to be available, many clients treat their financial advisor as a uniquely reliable and dependable presence in their busy lives. So hearing that their financial advisor is “leaving” — even though they’re still available to manage money — can be distressing. It’s absolutely essential that you take the time to craft appropriate and specific messages for your clients. A single generic email isn’t going to cut it: At this juncture, you need to take the utmost care of your clients’ sensitivities. 

Without information about your old clients, as stated in the Broker Protocol, and without a fully-functioning tech stack, it may take time to get your clients’ accounts up and running. Make sure  you tell them about the positive impact that these changes will bring. You don’t want old clients to believe that your new business has made you less responsive to their needs and desires.

Waiting too long

Making the leap to independence is a challenge,  so it’s tempting to put off or even cancel this massive change. Don’t let nervousness hold you back from a fruitful career with greater freedom and more rewards. Taylor Wilson, an RIA who broke away said, “The only thing I regret is not breaking away sooner. Leaving behind the sales quotas and high commission products of a broker dealer has allowed me to better serve my clients and increase my income in the process."

October 2, 2020