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Building a Foundation for Independence

Do The Prep Work Now & Benefit Later

By Victoria Bowen

Perhaps you envisioned going independent, but, for whatever reason (stability and security, education and training, family and home life) you know you won't be able to turn this goal into reality for some time. Don't stress about this, as you might actually experience a more successful bid for independence in the future, if you in turn utilize this period as preparation. Just as a building, regardless of how great it looks or defines space, must be built on a solid foundation to viable, so must your move to independence.

Here are eight things you can start doing now that will create the structural foundation and provide the base for a smooth transition to an independent status.

1. Start Thinking like a business owner. When you decide to go independent you become a business owner. Now is the time to start thinking like one and building the business owners mindset and skill set. Should you actually choose to make the move from the wire-house or brokerage to independence, you will need to become a business owner. Do you ever have moments where you think, "Well, if I were running things at the office, I'd do this..."? Good! Keep thinking like this, and keep a tickler file where you make notes of good and poor business practices that you've experienced or observed. Keep in mind that just because you're a good employee who understands financial advising doesn't mean you'll necessarily be a good business owner. These are two different skill sets, and the sooner you recognize this, the sooner you can start building up the skill set you don't have (being a business owner). It is great to take examples and systemic/structural examples from your current situation, but apply a critical thought process to aspects of the operation that would apply to a small business, where you may need to be the principal, assistance, accountant, and operations staff. A great book that delves into this concept is The E-Myth by Michael E. Gerber.

2. Practice "visioning." It might sound like some sort of new-age tactic, but studies show that envisioning what you want-like how your independent practice will look five years from now, what type of office you'll have, what sorts of clients you'll attract, etc.-will help you turn the vision into reality. This is because you're more likely to "see" and keep in mind (even subconsciously) the steps you need to take in order to turn the vision into reality. This process will inform more concrete aspects of your transition, such as developing your business plan, as well as short and long-term goals.

3. Assess your business skills...and look for ways to develop the ones you don't have. You already come to the table with a set of skills. Some will be critical to owning your own business. But where do you get those other skills you need? For example, maybe you're great with numbers, but you don't have the slightest idea about marketing or writing sales letters. What should you do? Read up or sign-up. Between the library and bookstore, you shouldn't have any problem finding books that will help fill in the gaps. Community colleges often offer classes or seminars with business themes. Your local Chamber of Commerce is likely to hold workshops for first-time business owners, and SCORE's small business counselors are also a great resource (and their services are free). Bottom line? Be mindful of your strengths and weaknesses-as both an advisor and future business owner. Don't be afraid to check your ego at the door and have a trusted friend or peer help you with your evaluation. Critical self thought can be restricted by what we are willing to admit and others may be able to provide clearer insight.

4. Save money. There are various start-up costs and ongoing costs related to going independent. The prevailing rule of thumb is that you should have at least six months' worth of savings to live off while you ramp up your business. Options such as office space are often dependent on your budget and having adequate savings will open up your search process. Given the current economy, saving will be a challenge, but it is important. Your savings will be your working capital and resources while you establish yourself and payments begin to filter in. If you can save eight or ten months worth, even better. Keep in mind that there may be some things you'll need to start paying for right away, such as health insurance or COBRA. Having a "future business" nest egg not only makes sense, but may be crucial to alleviating pressures that can contribute to poor decision making under stress.

5. Discuss your desire for independence with your spouse. You'll need a support network, especially in the early months of your independent practice. If you discuss the idea sooner, rather than later, with your spouse, there will be more time for discussion, negotiation, and "buy-in." Besides, no one likes surprises, and a supportive, informed spouse can be an emotional support, as they are then "invested" in the business.

6. Continue to build solid relationships with your clients. This is important, regardless of whether you choose to go independent. But the more solid your client relationships are now, the more likely they'll follow you if you choose to leave.

If you are definitely going to go independent, then the first thing that will happen when you leave is that your clients will be approached by advisors from your old firm. There are two things that they can do to try and keep the client - one is critique the portfolio you have built for the client, and the other is to try to befriend the client, and in effect ‘out-schmooze' you. Both strategies are defendable, but only if you have been doing the right thing all along. Ideally each client should have had an in depth portfolio review from you just before you resign, and any client who you might feel needs to know you better as a person should have heard from you at a personal level a few times in advance.

But regular portfolio reviews, and steady client bonding can't be done all of a sudden and out of the blue just before you resign! A consistent steady process of reviews and client bonding is fundamental to a successful practice, and is essential to a successful transfer to your new firm.

7. Stay away from proprietary products and do your homework. Once you leave your current firm, these products that you've gotten to know so well won't be yours to sell/represent. Instead, focus on products you believe in that you will be able to represent, regardless of where you end up. Take the time to research other products that you feel good about and complement each other in the markets you work in. Even if you choose not to use them, your understanding will provide you with a depth of background from which you can help your clients make informed decisions and see the value of your services.

8. Understand what you don't AND do like about your current situation. Just because there are certain things you don't like about your current employment, this doesn't mean you need to have your own independent practice. It could just mean you're at the wrong firm. Understanding what you like and don't like about your current firm (go ahead-make a list!) will help you differentiate between a firm that's making you unhappy or a business model (i.e. you being an employee instead of a business owner) that's making you unhappy. Also, want to get across that as an independent you are able to create your own model and processes you can use can still use those things that worked for in your current situation.

Remember, starting and running your own independent practice is a long-term process. Building a strong and protective foundation involves considerable physical and mental preparation. The same is true for your future practice. Put the time in now, and experience a smoother transition to independence later.


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