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GOING INDEPENDENT

The PROS, CONS and "PRONS"

So, you're considering going independent. And like all intelligent people considering a major move in life, you're weighing the pros and cons. But what about the "prons" – those perceived pros that have hidden cons tucked inside, and, likewise, short-term cons that have pro potential?

 

The truth is you need to consider the prons, too, which means turning your list inside out and separating perception from reality.

 

Common pros and cons

 

For many financial advisors, the biggest pros of going independent (after higher payouts) are the freedom to run the business as you choose and using the open architecture of independence to offer a wide variety of products and services. It's hard to resist the lure of being your own boss and running your business exactly as you see fit, without the pressure of quotas or proprietary products.

 

By contrast, some financial advisors believe they'll never be able to match the built-in credibility and established infrastructure that so many larger and more established wirehouses and regional firms enjoy.

 

Let's turn these so-called pros and cons upside down.

 

Freedom (PRO)

Potential Pron #1

 

Does freedom have pron potential, meaning, in this case, that there are cons associated with what on the surface looks to be a positive? Yes, absolutely.

 

For many financial advisors, going independent is a first foray into self-employment. Along with that freedom comes a whole set of new responsibilities…and possible headaches.

 

Suddenly, you no longer have a manager breathing down your neck and making sure your numbers are on target. This is a welcome relief for many, but it can also be paralyzing. Many of us are motivated by deadlines, quotes, and people to hold us accountable. Are you disciplined enough to meet your targets without them?

 

The job is also suddenly about a lot more than advising. Business cards, marketing brochures, and letterhead all need to be made from scratch. You’ll need to make decisions about all aspects of managing and operating your business, down to the day-to-day activities and basic supplies involved in running the office.

 

Freedom also means structuring your business model be strong and sustainable. A business plan is an important and all-too-often overlooked tool in helping you develop a clear vision and blueprint for the future. It’ll help you identify all those disparate areas that you need to keep track of – and the resources to help you create and maintain them.

 

Open Architecture/Product & Service Choices (PRO)

Potential Pron #2

 

Have you ever gone grocery shopping when you were hungry and forgot your list at home? Suddenly, you're overwhelmed by all the choices up and down the aisles. You find yourself filling your basket with foods that sound good, but that you might never eat. Or even like.

 

Meanwhile, you’ve forgotten to pick up the stuff you really did need.

 

The same is true with the myriad products that suddenly become available once you go independent. At the outset, it might seem like a dream come true. But are you really going to have the stomach to devote hours of research and analysis to the thousands of product options without sacrificing time that should be spent on clients?

 

Probably not.

 

But while overanalysis can turn this pro into a con, it doesn’t have to be this way.

 

This is where your business plan should come into play by providing clear guidance on what types of products, services, and tools your key client base really needs. Consider what you have already and what’s missing from your arsenal, and focus your efforts on filing those gaps.

 

This will not only help you choose the right partners, it’ll help you stay focused in the early stages of your transition, when time management and prioritization are absolutely critical.

 

Firm Brand Name (CON)

Potential Pron #3

 

Some financial advisors list the absence of a well-known brand name as a con for going independent. But consider how this may have hidden pro potential in the long-term.

 

Having a strong brand name is important when you start your career and have little experience or credibility. But once you build a client base, it's you – the advisor – who is often bringing the most value to the customer, not the brand.

 

This is an important factor to gauge when making the decision to go independent.

 

Do your clients truly feel the relationship is with you, their advisor, or is their relationship with the wirehouse? Make sure to really your business and your customers – this is a critical assessment that should be done as objectively as possible.

 

Also, take into consideration that clients may value the relationship with you, but have some trepidation regarding the safety and security of their accounts when moving to a lesser-known entity. Understanding the issues and concerns specific to your client base will allow you to effectively communicate the change to clients and address these issues during your transition.

 

And remember, brand names aren’t always the better name.

 

As more and more banks and wirehouses fall victim to scandals, a new trend has emerged: people are actually seeking to work with independent financial advisors.

 

As an independent, you're in charge of your own reputation and brand name. If you consistently deliver quality, ethical service to your clients, you'll enjoy the benefits of a solid reputation – one that you can potentially pass on to whoever follows in your footsteps.

 

While it takes hard work, and while it certainly won't happen overnight, there's something to be said for creating your own destiny, legacy, and brand.

 

Infrastructure (CON)

Potential Pron #4

 

You might think of your sudden lack of office space and support staff as a potential con.

 

While it's true that the wirehouse provides you with things such as staff, Class A office space, upscale furniture, décor, and other accoutrements, you are still the one paying for it: the override on your gross production, which in most cases is 60% to 70% of the pie, is covering those overheads.

 

Before you go out on your own, you need to figure out how much value these items actually bring to your independent practice. How important are all these things to you, your business, and your clients? Again, this means making an objective assessment of your business and your current and future client base. As an independent, you do need to pay for these things directly, but you now have control over what you’re buying based on its importance to your practice.

 

For example, based on your clientele you may find that having the most posh office in town is not a priority. Instead of paying for expensive office space, you opt for a less expensive yet professional office space such as an executive suite or shared office. This helps you to invest more in other items that you feel will bring more value to your practice, such as technology, qualified support staff or advertising.

 

In addition to having control over allocating your resources, you will also have the ability to stretch these dollars by comparison shopping and utilizing vendor discounts that may be available through your broker dealer or custodian.

 

In other words, you can invest each dollar where it can help you make more dollars, rather than giving it away to someone else’s overheads.

 

Conclusion

 

Going independent is not for everyone. Understanding and weighing the pros and cons of going Independent is one important step in the process, but it’s equally important to understand that the “pro” or “con” part aren’t always so simple to decode.

 

Planning and preparation are keys to ensuring that pros that have “con potential” continue to stay pros – and that cons that have “pro potential” fulfill it.