Considering going independent?

Advisors may risk fallout from their association with embattled firms. In a recent survey, 25% of affluent investors who have moved a portion of their assets out of their financial services firms cited “lack of trust” as a primary motivator.†

† “Memo to advisors: Don’t lose clients’ trust,” Investment News, 02/14/2005.

What have been the rewards of dedicating the time and effort to starting your own firm?

Hear what David Bromelkamp, CEO of Allodium Investment Consultants in Minneapolis, MN, has to say.

Why go independent?

Why go independent? The answer is simple — independence is the clearest path to getting what you really want:

  • Keep more of the revenue you generate and have more control over your expenses
  • Gain the freedom to look after your clients’ best interests and provide a broader range of products and services
  • Build equity in — and realize the value of — the advisory firm you’re building
  • Obtain greater control over your business: marketing, brand, client experience and pricing

As an independent advisor you can finally run things your way

Like lots of advisors, you’ve probably figured out that your success in building a book of business has more to do with your own skills than it does with the products, resources and reputation of your employer.

When you go independent, you can:

  • Have the opportunity to earn more than you can as an employee
  • Offer clients the products and services that you deem appropriate
  • Set your own fee schedules and formats, instead of being captive to the pricing structure and payout grid of a broker-dealer
  • Attract new clients who are seeking more objective advice from a trustworthy advisor
  • Build equity in a profitable business that you can eventually pass on to your family, transition to a business partner or sell

What exactly is an independent financial advisor?

An independent advisor (or, a “Registered Investment Advisor,” also known as an “RIA”) is a professional financial advisor who offers unbiased advice for a fee and who can provide financial products from the entire market. In addition, RIA’s:

  • Usually charge a management fee based on a percentage of a client’s total portfolio (the range is typically 80-150 basis points per year). Alternatively, an advisor may charge an hourly or flat fee
  • Are independently registered with the Securities and Exchange Commission (SEC) or their state securities regulator and regulated by the Investment Advisors Act of 1940 which means they have a fiduciary duty to act in the best interest of their clients.
  • Use a custodian to hold assets, execute and settle trades, and provide other products, services and expertise to financial professionals; may use a broker-dealer, bank or other custodial resource instead

Case study: The Golub Group

The Golub Group is reaping the rewards of going independent.

The Golub Group was founded by Michael Golub with several partners in 2003. Golub, who began his career in 1967, was already doing a brisk business through the broker-dealer. He and his partners were bringing in over $1 million per year revenue, with a client base of 240 high-net-worth individuals and $180 million in assets under management.

What spurred them to consider forming their own independent advisory business? “Clients didn’t value our broker-dealer,” says partner Colin Higgins. “We finally had to ask: why are we paying out half our income to a firm that’s not helping us?”

After exploring the option of going independent, researching the risks and performing careful planning, the partners decided that they could keep their current clients, but provide them with better service and build an equity stake in their business by establishing as a new, independent entity, apart from their broker-dealer employer.

Despite an aggressive campaign by their former employer to retain the group’s clients, the partners managed to keep 96% of client assets at the time of the move. And, within 15 months of opening up shop, the firm increased client assets under management by more than 30%.

“My wish for fellow advisors is to do this earlier than I did,” says Golub. “This reward that we’re all reaping now is precisely because we cut ourselves loose.”

The mention of the above firm is not, and should not be construed as a recommendation, endorsement or sponsorship by Schwab. This firm is not affiliated with or an employee of Schwab. You must decide whether to hire any firm and the appropriateness of their services for you or your firm. Schwab does not supervise third party firms and takes no responsibility to monitor the services they provide to you. (1206-8162)