The trend of financial advisors breaking away from their brokerages doesn’t seem to be dying down anytime soon. Changes in the industry — the shift from commission-based compensation models to fee-based, increasing compliance and regulatory requirements and advances in technology — are all making independence more appealing to advisors.
According to Cerulli Associates, about 9% of advisors switched firms last year. Many more are thinking about it. In a recent survey, Fidelity found that while 60% of advisors are satisfied with their careers, only 40% are happy with their current firm.
"Advisors want more freedom, flexibility and control over the business and clients, while firms are trying to standardize things and take away control," says Louis Diamond, executive vice president at Diamond Consultants.
Know your ’why’
There can be any number of factors driving advisors to break way, but the most important reason for any advisor mulling the move is their personal "why." Advisors who have made the jump say the first step to figuring out the right path is some self-reflection.
Diamond, who works in recruiting and consults for advisors looking to break away, emphasizes that advisors need clarity on their goals. "Are they looking to retire soon? Or are they going to do this for next 30 years? How interested are they in building a brand and how important is technology?” he asks.
Julie Genjac, managing director of applied insights at Hartford Funds, looks for three elements for a successful fit: the right firm, the right reasons and the right time. Figuring out fit might mean examining the relationship with the firm — the relationship with the staff, day-to-day manager, back office and layers of senior management. It also includes looking at the firm’s values and technology platform.
This process of self-reflection can help advisors pinpoint what exactly needs to change and ensure the desire to break away is not just a knee-jerk reaction or emotional response to a frustrating event, she says. Advisors who ultimately find the right fit are those who "are really truly honest with themselves," she adds.
Know what differentiates you
To stand out in today’s industry, advisors not only need to understand their strengths but also need to differentiate themselves. Whether it’s a passion for insurance, estate planning or a unique investment philosophy, advisors need to articulate both their qualifications and what makes them different.
"If you’re in business to help people, people need to understand your why, how you are going to do it and what are you going to do," says Dennis Brown, co-owner of M&O Marketing, an independent marketing organization in the fixed annuity industry. It could be personal or business or some combination, he says, adding that it doesn’t hurt to be more personal and relatable to prospective clients.
"People don’t buy products. Someone can come in [wondering what to do] with $1 million and get seven different opinions from seven different advisors. Who you trust the most and aligns with what you want to do with your future gets the business," he says.
Evaluate your client relationships
Advisors also need to evaluate their relationships with clients. The key to any successful breakaway is for clients to follow, so those relationships need to be strong.
"It starts with an honest assessment from the broker or advisor: ’Are these my clients or are these clients of the institution that I’m beholden to? If I leave, will these clients follow me?’ That is the biggest litmus test," says Lenny Chang, co-founder, senior managing director and head of M&A at Focus Financial Partners. Chang looks closely at metrics such as client retention rates, especially in times of distress; philosophy about how advisors serve clients; the sophistication of the model and the type of clients they serve.
"A real trusted relationship between client and advisor is especially valuable in an industry that’s disintermediating or commoditizing many parts of the relationship. But the last mile of the relationship is not commoditized, and there are plenty of brokers out there that never get to that level because that’s really hard."
Settle on a strategy
Advisors looking for independence have more choices than ever before. Those with an entrepreneurial mindset can create their own RIA, which allows them to manage the client experience and all the business aspects. Advisors with less entrepreneurial zeal can join an RIA, choose a tuck-in model or become an independent contractor at a broker-dealer.
While compensation is an important factor, landing on the right strategy depends on the advisors’ appetite for risk and running a business, client assets, ability to build a team and many other factors. The good news for advisors? "It’s easier than ever to break away because of the resources," says Kyle Hiatt, chief revenue officer at Orion Advisor Tech.