Prepare for a (Soft) Landing
by Victoria Bowen
Thinking about going independent? Joining an established, independent firm is an attractive option because it allows for simpler and easier transition to independence since it requires less of a financial and time commitment. By leveraging the resources of an established firm, you, in essence, can hit the ground running.
So if you've been dreaming about starting your "ideal" independent firm, this is welcome news: it's quite possible that ideal firm already exists.
Many Indie Firms Are Looking for Advisors
Independent firms that are in growth mode are always anxious to welcome experienced advisors who want to escape the wirehouse or captive environment, and luckily, there's no shortage of these growing independent firms. The major custodians and other industry consultants have noted the increase of inquiries of advisors looking to join a firm rather than build their own.
However, it's important to point out one caveat: while independent firms might share a maverick-type philosophy, each one will be a little different in terms of business structure, affiliation models, platforms, compensation methods, and product and service offerings. One size does not fit all, so it's important for you to understand these differences, specifically what to look for when evaluating one independent firm against another.
While you'll need to consider many of the same factors that any advisor seeking independence would need to think about, (these factors are highlighted in our booklet “On Course for Independence” ) there are some additional factors to evaluate when thinking about joining an established "soft landing" firm.
Finding the "Best Nest": Factors to Consider When Evaluating Soft Landing Firms
Independent firms typically offer a higher payout and an open product and service architecture. They don't represent any proprietary products. Some may offer a broader range of products and services, while others may focus on a specific area or niche of clients.
As far as independent firms that are "soft landing" firms, they typically fall into a few basic categories.
Types of independent firms that offer a “soft landing” to advisors:
RIA Firms. These firms are registered with the SEC or state, depending on their level of business and regulatory requirements. Advisors charge a fee for service, and the firms are often referred to as fee-only firms.
Hybrid Firms. These are RIA firms that are dually registered with a broker dealer through FINRA, which allows them to do fee and commission business.
Note: RIA firms typically have a relationship with one or more custodians and use the services of an independent broker dealer (if hybrid), or sometimes they have their own broker dealer.
Independent Broker Dealer Branch Offices. These independent firms typically will have their own unique brand, but they are affiliated with an independent broker dealer, like LPL or Raymond James. Advisors at these firms usually have the opportunity to be dually registered using the broker dealer's corporate RIA for-fee business in addition to the broker dealer for transactional/commission business.
Regional Independent broker dealers can often serve as soft landing firms because they can offer advisors office space and support within their home office.
Note: While some firms will operate within a broad scope of product and services, some firms may further categorize their business and identify themselves with a certain model, such as wealth managers or investment managers.
Questions to ask soft landing firms…and yourself.
Business Mix. As an advisor, what is your current business mix? What are the products and services you need to have available? Do you require the ability to do both fee and commission business? Is the soft landing firm you're evaluating able to support this business (and comfortable with supporting it)?
Consider not only the business you're currently doing, but also the business you'd like to do in the future. While your goals and the soft landing firm's goals don't have to match up exactly, the firm needs to fit your current needs…and be open to your future goals. For example, would the firm open up an area of expertise to expand your current offerings? This might be a good question to ask.
Platform. Regarding the soft landing firms you're evaluating, what technology and trading capabilities are available? What products, services, and support are available? Again, keep in mind your specific needs. An important factor to consider is the firm's underlying broker dealer/custodial relationships. Independent firms typically will rely on their broker dealer and/or custodian for technology, services, and support.
Some firms will rely more heavily on the support and services while others may prefer to build out their own systems and service models. Look at the broker dealer or custodian as serving as a foundation for a firm. Take time to do some due diligence just as you would if you were going out on your own and choosing a broker dealer or custodian to start your own business. (See "Choosing a broker dealer partner" in our booklet, "On Course for Independence.")
Compensation & benefits. How will you be compensated? Again, this will vary firm by firm. Some will offer a straight payout, while some may offer a salary with benefits. Independent firms have flexibility when it comes to compensation, but this means that there is no standard compensation model. Typically, firms will offer a payout of gross production, and sometimes this payout will include all expenses. However, sometimes certain expenses will need to be covered by the advisor. Some will offer a salary or salary plus bonus.
If you are seriously considering a firm, ask for a pro forma to see how your business translates under the new model. If you are getting a payout percentage, be careful not to focus on the gross amount, and keep in mind any additional expenses, like ticket charges and other fees. Ask if the firm has any a la carte charges (this allows you to pay for only the services you actually need). Some costs will be fixed to the firm, so as your business grows, your compensation should, too. Remember, the compensation model should be fair for both the firm and the advisor.
Regarding support, ask what type of support staff will be available to you. This will often be determined by your role, whether you're part of a team and/or become an employee, or if you're able to have autonomy to work independently while leveraging the resources of the firm.
Ownership. Part of the lure of joining an established and growing practice is the ability to participate in the growth of the firm. Many firms are interested in bringing on experienced advisors not only for growth, but also to address succession issues, so ask about potential opportunities. If you're interested in acquiring other practices, ask about that as well and see if the firm would be willing to assist you.
Growth potential. Consider how much your business could grow in the new environment versus where you are now. What sort of investment does the firm make in its advisors (e.g. continuing education programs)? Communicate your business goals openly and honestly (e.g. do you plan to leave and start your own firm someday?).
Culture. This is a key consideration when determining if a firm is a good fit. Often, you'll find a handful of firms that meet your other criteria, but it's the firm's culture that will be the deciding factor. The principal owners usually determine a firm's culture. Is it more of a team approach or is everyone doing his or her own thing? What are the owners' backgrounds? Did they come from a wirehouse or insurance planning background? What are their visions and values, and how well do they match up with yours? What is the long-term plan for this firm? How many advisors do they want to add…will it be the same firm in five years? Remember, each firm is different.
Office space. Independent offices can range from Class A office space to a more casual office condo to shared office space. Firm owners who come from a wirehouse background may try to replicate the wirehouse office environment and choose to invest in a more formal office space. Some will have a less formal office set up. Again, it's an important consideration. Questions to ask yourself: does the office environment provide a comfortable and productive environment for you? Will you feel comfortable bringing clients to the office?
Transition support. Just like any advisor who is going independent for the first time, a well- planned and executed transition is essential. Will the firm help you navigate any potential legal/employment issues you may have if you leave your current firm? How fast can you get up and running? Will your new firm assist you with preparation and paperwork? Is there any transition money available? Have they had experience transitioning advisors?
Control. Do you own your book? This is important, especially if you're joining as an employee. What about new clients you acquire with the firm?
Written agreement. What does the written agreement look like? Is there any verbiage you don't understand, and does it specify what will happen if you part ways? It is important to have key items of the new relationship in writing so all parties are on the same page.
Takeaway for advisors thinking about making a soft landing
It’s important to understand the factors when going independent and the additional considerations when joining an established, independent "soft landing" firm. Identify your goals and the things that are most important to you.
At the same time, understand that there are many different options and platforms and that more than one firm can meet your needs. Take time to look at different opportunities. Ask questions and perform due diligence, and recognize the fact that the soft landing firm will need to do the same.