2021 has been a year of unprecedented changes to the way we live and work. For the first time, many financial advisors were able to work remotely, plugging into family life like never before, and developing new workflows and approaches that worked for them. And many — including many who never previously considered an independent path — have begun wondering, why not go independent? With best in class technology, virtual administrative tools, and remote system networks available to independent advisors, as well as the lessons many of us have learned over the past year about managing and maximizing the pros of independence, it seems there has never been a more auspicious time to continue working as a true independent financial advisor and completely own your practice.
Let’s talk about the things you need to turn your recent and possibly continuing remote work experience into true independence, as an Independent Financial Advisor in 2022.
Building and Keeping Client Relationships For A Move To Independence
For those advisors who have been used to an employee model, the prospect of striking out independently can seem daunting. After all, opening your own business is always fraught with risk and pitfalls. So, before getting started, advisors should do their due diligence by speaking with Terrana Group, experts in the Independent Transition space, before making the decision to take the leap.
Think About Your Client List
Advisors contemplating a move should start by examining their client relationships. Conventional wisdom suggests that between 60% and 90% of an advisor’s clients typically follow their advisor through a move. Advisors, then, should think about strategies for maximizing client retention through the switch to independence. Retaining a solid book of business reduces the startup costs of opening a new firm, and can ensure a steady income stream throughout those uncertain first few months. In the end, it’s always easier and more cost effective for an advisor to retain existing clients than to build a client base from scratch.
Start by honestly classifying clients to yourself by yes (green), no (red), and maybe (yellow) whether or not you believe the client will move with you to the new firm. Our internal TG data shows that the advisor’s best guess on which clients will follow is within 5% plus or minus of that client actually moving with you. Protocol firms allow advisors to contact clients once they have made the move to a new firm, although those firms strictly limit the data that can be taken upon departure to 5 pieces of client information: client name, address, phone number, email address, and account title.
Most important; Advisors contemplating a move should be proactive in communicating with existing client relationships. Are you reaching out to your clients on a regular basis? Do you have a system in place for making those contacts? Making sure those relationships are current and rock-solid months before a move can make for an extremely smooth and quick transition. Keep in mind, however, that you should never insinuate or share the news about moving to a new firm ahead of time.
Non-Solicitation Agreements and Non-Compete Agreements
Some firms require advisors to sign a non-solicitation or a non-compete agreement when they are hired, which can slow, but not stop, the process of connecting with their clients when an advisor leaves and joins a new firm. If you are subject to such an agreement, be sure to read it carefully and understand the enforceability of such an agreement, which varies from state to state. Getting an attorney’s advice as to the likelihood that it will be enforced is highly recommended, but in no way should sway you away from strategically planning your move. It is highly recommended for you having legal counsel explain exactly what you can or can not do or say before, during and after you switch firms. The bottom line is that clients ultimately have the right to choose who they want to work with and for them; so even an enforceable agreement won’t limit your ability to provide your clients your advisory services.
Further, FINRA Regulatory Notice 19-10 addresses the responsibilities of member firms when communicating with customers about departing advisors:
In addition, a member firm should communicate clearly, and without obfuscation, when asked questions by customers about the departing registered representative. Consistent with privacy and other legal requirements, these communications may include, when asked by a customer:
1. clarifying that the customer has the choice to retain his or her assets at the current firm and be serviced by the newly assigned registered representative or a different registered representative or transfer the assets to another firm; and
2. provided that the registered representative has consented to disclosure of his or her contact information to customers, providing reasonable contact information, such as phone number, email address or mailing address, of the departing representative.
Planning Your Move
A successful transition to an Independent firm or a RIA model begins with a business plan and a plan to finance the move. Consider first which Independent model might work best for your goals — an IBD, hybrid RIA (in which an independent RIA is affiliated with an independent broker-dealer, or IBD), or pure fee only RIA model. Formulating your business model six months to a year before making your move can ensure you’ve worked through every variable, including financing the transition.
The first year or so of independence is a development year and new IARs should be prepared to break even in the first year. Terrana Group works with 3rd party providers that specialize in breakaway strategies including outsourcing middle and back office operations. Securing financing (as well as personal insurance such as health, life, and long-term disability coverage) is generally easier while employed, so preparing to finance the venture can set you up for success. Your business model should also account for legal and compliance work, including, if necessary, hiring an experienced attorney or compliance firm to assist you in establishing a corporate structure and completing any registration forms (including Forms ADV 1A/1B, 2A/B). You should also consider the costs and benefits associated with different technological platforms for your new business, and consult with Terrana Group, independent transition experts, on making the move. A solid business plan and consulting the experts will give you a foundation and a timeline for your leap to independence.
Want to Keep the Conversation Going?
All of us at Terrana Group welcome the opportunity to consult with you to determine the right platform for you going forward — one that satisfies your long term objectives and is also best for your clients!
Over the course of nearly 30 years, we have helped facilitate thousands of professional placements for Advisors, with client assets transferring exceeding $67 billion dollars. We have completed placements in most every major city throughout the United States, while building deep relationships with the advisory world’s most sophisticated and notable firms — including Wall Street brokerages, most Regionals, Boutiques, Banks, Independent Broker Dealers, RIAs, and Custodians. Beside having the seamless transition knowhow, we have a broad knowledge of the deals that are currently being offered and will ensure that you are being presented with the offer which will be best for you.
Confidentiality, professionalism, and respect are protocol to our practices and beliefs; we handle each and every step of the placement process with complete communication, keeping you informed while making the process smoother from beginning to end.
We are proud to always be considered as a great asset by our clients because of our proven expertise, many years of knowledge, and acute attention to detail. Financial Advisor Recruiting Services are not all created equal; we guarantee that the TG experience for clients and candidates is always world class.
We are based in Chicago, with a nationwide reach. Let us know you are interested by contacting us today. To get the conversation started, email info@terranagroup.com or give us a call at 312.655.8380 today.
