There are more than 300,000 financial advisers in the U.S. and approximately half of them now call the independent model home. There are certainly many options for those who want to take this path. Indeed, with over 120 independent firms, it can be overwhelming deciphering the various cultures, technologies, product offerings, services, custodians and clearing firms, just to name a few considerations.
Some advisers feel that going independent is all about the payout. Granted, this is a major part of the equation but there are other considerations as well. For any adviser considering a move to independence, a major factor is deciding how much of their book will likely move with them.
This can be a difficult task especially in the bank model. We have created a spreadsheet to help advisers determine which clients are likely to move with them. Once you know which clients will follow you, it’s simple math to project your future revenue and profit margin.
QuoteFor any adviser considering a move to independence, a major factor is deciding how much of their book will likely move with them.
For example: if a $600,000 producer with $60 million in assets can move 60% of her clients, she is likely to produce $360,000 in her first year as an independent adviser. If she takes 70% (the industry average) to the bottom line she will have income of $252,000. The question to ask herself: can she live on this income? If so, perhaps she can afford to go independent. If not, she may have to wait longer to build stronger relationships with her clients. This will ensure more will make the move.
But money is not the only consideration. It’s important for advisers to know whether they are cut out for independence in the first place. Business ownership requires a certain interest level, personality type, skill-set, drive, and perseverance.
If the right adviser selects this model, they will have a fulfilling life with greater happiness and financial reward. However, the wrong adviser will experience misery, frustration and financial problems.
Here at the Rummage Group, we consult with advisers every day who are considering independence, but after an in-depth consultation, we discover many are not cut out for the independent model. On the other hand, we also consult with advisers who would perfectly fit the profile of an independent, but never seriously considered it.
Many advisers stay away from this model because they believe it consumes too much time and the net payout is not much higher. Both misconceptions are inaccurate. The average independent adviser spends between 5% and 15% of their time running the business, and keeps about 70% of the revenue after all expenses.
Some of the many benefits of business ownership are: keeping more of the revenue, setting the culture you want, book ownership, more retirement options and office location. In addition, they have more control over branding, expenses, marketing, hiring, compliance, technology, scheduling and office meetings.
All of these misguided notions prompted us to design this “independent test.” We hope to help advisors determine if they have what it takes to become go independent or if they should remain a W-2 employee.
For the best results, be honest with yourself when answering these questions. Your answer will help organize your thought process and perhaps even force you to acknowledge some aspects of your personality that you’ve been ignoring, whether they are conducive to owning your own business, or in stark contrast to it.
Answer each question on a scale from 1 – 10. (1 is strongly disagree, 10 is strongly agree; the rest are varying degrees between.)
1. ____I am a risk taker.
2. ____I like to be in control.
3. ____I like to challenge myself.
4. ____I dislike inefficiencies and poor processes.
5. ____I always seek new and better ways of doing things.
6. ____I am self-motivated and a self-starter.
7. ____Winning is very important.
8. ____I don’t like people less capable than me having control over my life.
9. ____I am rarely complacent or satisfied.
10. ____I have strong relationships with most of my clients.
11. ____I am very focused on reaching my goals.
12. ____ I have higher than average energy.
13. ____I strongly dislike Corporate Bureaucracy and politics.
14. ____When there is a serious problem I jump right in and solve it.
15. ____I think I would do a good job running my own business if I choose to do so.
16. ____I am good at delegating responsibilities.
17. ____I have good time-management skills.
18. ____My family supports me and my decisions pertaining to my career.
19. ____Over the years I have thought about starting my own business.
20. ____If I leave my firm, at least 50% of my clients will move with me.
21. ____I don’t think my firm deserves as much of my production as they take.
22. ____ I get mad when I have to live with bad management decisions.
23. ____I dislike aspects of my firm’s compensation structure – i.e. “Haircuts, bonuses, payout, fees, etc.”
24. ____I dislike the constant changes to my firm’s compensation plan.
25. ____I want more control over my Sales Assistant, i.e. Selection, Schedule, Tasks, Sharing with others, etc.
26. ____I want more control over hiring & firing (Jr. FA’s, Interns, Analysts, Portfolio Managers) for my team.
27. ____I hate when my firm wastes money – they could better invest it helping me market and grow.
28. ____It drives me crazy if management shows favoritism.
29. ____ I don't like it when my firm declines one of my reasonable requests.
30. ____Owning my book and being able to one day sell it at 2 – 3 times its revenue is important to me.
0-120: This is not the career for you. Look for a more fulfilling profession.
121-150: You are happy, and should remain at a W2 Firm.
151-180: W2 Employee is probably best or maybe a good Plug & Play.
181-240: You should go Independent, RIA or Hybrid.
241-300: You should have gone independent years ago. Don’t let fear hold you back any longer.
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