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What to consider when breaking away from a big firm

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For many advisers at big banks and wirehouses, the idea of going out on their own can be enticing.

But industry observers caution that going solo is no walk in the park, and it calls for careful planning.

Two experts, Matt Oechsli, founder of the Oechsli Institute, an adviser coaching firm in Greensboro, N.C., and Rick Rummage, principal of The Rummage Group, an adviser consulting firm in Herndon, Va., shared their thoughts.

These are three things to consider.

1. Consider the decision carefully. “Are you willing to be a businessperson because you’re going to be running your own business?” Oechsli asks.

“That means you need to be ready to cover your overhead costs, to pay for all the audits, to handle all the compliance requirements. In a firm, you come in and turn on the lights,” Oechsli says.

When advisers work at a big firm, they can focus solely on financial planning and not running the business.

Rummage agrees.

“You need to think about how you’re going run your firm,” he says.

“Will it be just you and maybe a sales assistant, or will you be hiring new young advisers? Will you be a generalist, or will you try to serve some niche?” Rummage asks.

2. How can advisers get clients to follow them? “You need to work out how you’re going to communicate with your current clients about your plan to go independent,” Rummage says.

Although people often violate non-compete clauses, there are ways to go about it that can reduce the chance of a lawsuit.

“You can’t say, ‘I’m leaving to start an independent business. Will you stay with me?’ But you can say things like, ‘I’m excited to be getting out on my own where I’ll be able to do things my way, not the company’s way and to be able to offer lower fees,’” Rummage says.

Clients will get the message, he says.

“These days everyone is raiding everyone else, so it’s not like you’ll be doing anything that your employer isn’t doing. But you need to make sure your clients are going to follow you when you leave,” Oechsli says.

“Remember, nobody’s going to give you anything,” he says.

3. Before going solo, consider all the resources, tools and support systems at the firm and what those will now cost.

“Don’t take for granted what your current firm is providing to you,” Oechsli says. “Will you be able to replicate that, and if so what will it cost you?”

When it comes to choosing a clearing firm, Oechsli says to remember that these companies “will be selling themselves to you.”

So, “don’t take them at their word. Ask the tough questions,” Oechsli says.

“I’d do a home office visit before selecting a clearing firm, and do your research,” Rummage says. “Talk to multiple advisers before selecting a company.”

This story is part of a 30-30 series on transitions.

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