Become an independent financial advisor

Many registered investment advisors (RIA) once considered forming an independent financial advisory company. However, the attributes that make a person a successful consultant in a larger organization do not always translate into the skills needed to run an independent business. Nevertheless, as more and more mergers and acquisitions occur in the industry, many consultants have concluded that now is a good time to attack independently.

For those who are accustomed to working in large companies with stable incomes, turning to independence can feel unpredictable and risky. It also requires considerable time, planning, and the ability to resist risks.

If the goal is a high-paying day, patience is also necessary, because many consultants end up losing clients when they leave a large company to build their own business. However, any consultant can take some basic steps to help make the transition smoother.

Key points

  • Registered investment advisers usually consider independence.
  • Becoming an independent financial advisor has risks and benefits.
  • Financial advisers should ensure that they have a way to keep in touch with clients before becoming independent.

Everything has to do with relationships

An important step that any consultant should take before leaving the company is to evaluate their client relationship. You want to make sure that your customers are very satisfied with your work and your relationship is strong. Clients want to feel that their consultant knows them well and is thinking about the future of their family.

Strengthening these relationships through frequent customer contact is the key. This is why consultants who plan to take action should start consolidating their client relationships months in advance. Typically, 60% to 90% of clients will be loyal to their consultants when they move to another company or open a new company. The stronger the relationship, the more likely it is that satisfied clients will follow their advisers anytime, anywhere.

In fact, many people in the industry agree that when consultants go out alone, the key to success is to ensure that they don’t start from scratch in terms of client relationships. It is much easier to eventually bring existing customers to you than to build a new relationship from scratch.

Keep your customers

In many companies, certain agreements have been made between brokers and RIAs, which stipulate that the contracting company will not initiate legal proceedings against consultants who carry basic customer data with them when they move to another contracting agency. In addition, many consulting companies allow their consultants to contact their current clients when they leave the company to let them know when the consultants are leaving and where they are going. This allows clients to choose to move their accounts when consultants move, which may also be in their best interest.

However, as we all know, some companies will require employees to sign a non-competition or non-solicitation agreement when joining the company. For consultants who want to take risks on their own, this can become tricky. In this case, it is important that the behavior of the consultants cannot be interpreted as proactively persuading their clients to withdraw from the company, as this would violate the contract they signed.

Maintain customer communication

However, nothing prevents consultants from providing clients with their private email or home phone number so that clients can choose to contact the consultant themselves if they wish to continue the relationship.

In these situations, when consultants are allowed to carry the customer’s basic contact information with them when they leave the company, they are generally not allowed to carry any information about the customer’s account with them. In this case, the consultant may wish to send an email to his or her client to let them know their whereabouts, hoping that the client will follow up and provide any information they want their consultant to have.

Financing the move

One caveat that consultants should be aware of before establishing themselves is that money may not roll in immediately. In fact, it may take a long time for consultants to match their previous income. Usually, in the first three to six months of a new business, the consultant’s income may decrease. At the same time, start-up costs will continue to increase, so balance of payments may be a good goal for the first year.

One of the risks of becoming an independent consultant is the cost and ability to obtain financing.

Without a significant amount of savings, consultants who wish to start a new business may need to obtain a certain amount of financing. This can be obtained by obtaining a bank loan or line of credit (although this type of financing is not as easy to obtain as it used to be) or by talking to a broker-dealer or custodian, who may provide financing semester notes to the adviser in the following ways. Either way, it is a good idea for consultants who wish to be independent, to deposit at least nine months of income in an emergency fund. As the business grows, it can provide a much-needed buffer.

In the beginning, the consultant may want to work from home instead of investing a lot of money in office space. They can also save money by doing most of the administrative work themselves. However, it may be a good idea to let the broker-dealer be responsible for the compliance side of the new business and outsourcing the back-office functions, and it can also make things go smoothly.

Consider an independent company

If the transition to independence seems too overwhelming, too risky, or financially unfeasible, the advisor may wish to join an existing independent consulting firm or independent broker-dealer that provides investment services.

The advantage of this (compared to starting your own company) is that it eliminates startup costs and indirect costs, as well as back-office and compliance costs, as well as various other management costs.

Other benefits

With most of the infrastructure and support from the beginning, consultants can focus more time on maintaining existing customer relationships and establishing new customer relationships. These small independent companies may also like to approach qualified and experienced consultants, because these employees will help eliminate the need for them to spend time and money on recruiting new talent.

In the end, it is up to each consultant to determine the path that suits them best. Although some people may prefer to work in companies where infrastructure and support are in place, others may still aspire to be free to go out and create their own investment styles and methods.

Bottom line

Many consultants are moving towards independence and opening their own consulting companies. To make the transition easier, they should strengthen their current customer relationships, figure out whether financing is available and necessary, and find ways to reduce costs as much as possible. For those who are ready to take risks, the benefits of independence may be worth it.

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