The 5 Biggest Shock-Factors For Breakaway Advisors 

So you’re a financial advisor who’s currently at a wirehouse. Maybe you’ve considered breaking away to start your own independent firm, either solo or with your existing team. Or perhaps, you’re looking to join an existing independent firm as a partner. Either way, there are a lot of opportunities and possibilities ahead of you.

In fact, 93% of breakaway brokers believe that independence offers them as much or more income than their previous firm, according to a recent TD Ameritrade survey, with 44% saying they will make the move in the next year. 

I’ve worked as a recruiter in the wealth management industry for over 20 years, so I’ve talked many of these advisors through the process of breaking away and building teams from the ground-up. For most of the advisors I’ve worked with, making the transition from a wirehouse to an independent advisor or firm owner is the single most important professional decision they’ve made in their careers. 

But along with this monumental shift in career paths comes a monumental shift in an advisor’s day-to-day responsibilities — and while some are obvious, there are always a few “surprise factors” that pop up when an advisor’s starting out as an independent. 

I can promise you: if independence is the path you wish to take, and are meant to take, it can be the most rewarding and life-changing decision of your life — that is, as long as the process is thoughtful and measured, and you own the responsibility ahead of you.

A Quick Analogy

The differences between working on a wirehouse team and starting an independent firm (or joining one) can be compared to managing a Starbucks franchise team, versus starting your own, independent coffee shop. 

As a manager of a Starbucks with many years of experience, you inarguably understand the consumer marketplace and the ins and outs of managing a team. You also have the technical knowledge of what it means to serve quality coffee, and how to keep your customers coming back.

You believe that these skillsets will make you an excellent owner when you open your independent coffee shop – and you’re probably right. You also believe that by not having “the man” dictating every move you make, your customers will be able to get a more customized, quality product and overall better experience – again, you’re probably right. 

But once you begin the planning for your independent shop, you may realize there are many detailed, not-so-predictable qualities of going independent that you’ve overlooked. For instance, you may find that you’re not able to negotiate the same rates for your custom cups, napkins and ingredients as you could when you had the name recognition and scale of the franchise. Or, you may be forced to get a lower-budget POS machine, which takes time to learn and is more likely to malfunction regularly, costing you the valuable time you weren’t accounting for. 

Analogy aside, I hope you see my point. Advisors who’ve made a name for themselves in the wirehouse world for many years inarguably have the experience required to provide high-quality, personalized service to clients. And for many, the freedom and conflict-free nature of being an independent advisor are enough to inspire them to make the leap. 

There are also many factors that can catch the advisor off-guard if they’re used to their wirehouse ways. Here are five of the most common ones which, if adequately thought out and prepared for, can inevitably become an independent advisor’s biggest strengths. 

#1: Partnership Dynamics

If your wirehouse team is planning to break away, I encourage you to think long and hard about who you’re going into business with. Some teams may work well in an environment where processes are streamlined and you’re not responsible for keeping the lights on, but when it comes to running a business, this team needs to be on the same page in every aspect. 

Let me paint a scenario for you. You’ve started an RIA with a team you’ve worked with for 20 years. You transfer your book of business and are on the road to success. But a year into running the practice, you’re faced with a crossroads: to either invest in better technology or invest in hiring a client service manager.

Now let’s say your partners want to be known in the industry as “forward thinkers” and “technology gurus,” so they decide they want to invest in technology. You, however, place a much greater value on client service and want to invest in a manager who can help nurture your client base. What do you do? 

This scenario is very common and can lead to a downward spiral of disagreement and resentment among teams who haven’t gotten on the same page before entering into a new venture. 

Be aware, and be communicative to avoid momentum-halting disagreements. Also consider taking a reputable, online leadership quiz to see if your styles complement or contradict each other. 

#2: Building a Team

One of the most common oversights advisors make when they break away to start or join a firm is, instead of focusing on their most important task – to get their current clients to come over to their new firm – they immediately start looking for advisors to hire.

It’s an understandable misstep when you consider that they’re used to being in a wirehouse environment where there are ample support staff and specialized advisors.

But as a breakaway advisor or team, you do not have this luxury because you do not have the budget. As stated above, your sole purpose is to transfer your current book of business and ensure your clients that their service will get exponentially better as a result of your move.

As a rule of thumb, I tell my clients not to even think about hiring their first advisor until they’re 12 months into their new venture. Because in month 12, you’ll have a book of business that trusts you. You’ll be versed in your CRM and other technology systems, so you’ll be able to teach and lead other advisors. And most importantly, you’ll have an understanding of your growth trajectory so you can hire smartly. Otherwise, if you hire right out of the gate, you’re more likely to make preemptive decisions and allocate money to the wrong areas of the practice.

In the meantime, outsource where you can to keep your overhead costs minimal. 

Related: How to best write your “Team” or “About Us” page

#3: Scalability

In a wirehouse environment, more is more. Growing your client base is an all-around positive, and there’s always a way to scale. 

But when you’re an independent firm, consider the costs of growth. When you double the size of your business, your fees and overhead costs will inevitably go up. Perhaps you’ll need to hire a support team, which will require more time allocated to training and ensuring processes are as efficient as possible. 

I always tell my clients, “plan for the firm of tomorrow, not the firm of today.” This means you should use your 12-month trial as a starting point to project how much you anticipate you’ll grow, and what kind of human capital you need to get you there — before you overextend your practice. 

#4: Technology

Somehow, technology costs always tend to be much higher in practice than breakaway advisors anticipate. This is for a few reasons, not the least of which is there are many technology systems at wirehouses that are often taken for granted – like phone systems, security, office equipment (computers, copy machines), and of course programs used to serve clients, like a CRM, financial planning/portfolio accounting software, and risk assessment software.

When it comes to technology, cheaper is not always better, and it’s important to find solutions that will be able to scale alongside your growing practice. Also, remember that the opportunity cost of learning how to use and manage the technology is higher than you may expect, so make sure you factor customer service offerings into your decision of which providers to use.

#5: Client Relationship Management

Client relationship management is the most important “shock factor” advisors face when breaking away. At a wirehouse, it’s typical that you’ll have roles dedicated to ensuring the clients feel heard, supported and taken care of. But when you’re independent, that’s your responsibility. Beyond the scheduled client meetings, it’s important to have a constant touch-point to keep them engaged and make sure they don’t feel a decline in the level of service if they’ve taken a chance on your new endeavor. 

I prioritize client relationship managers as one of my first recommended hires. This is because, above all else, if your clients aren’t happy, your practice won’t survive.

Breaking away from a wirehouse and taking the leap to go independent is a beautiful thing, and I commend advisors for taking the risk. If you think carefully about all sides of the coin, you’ll be able to turn each surprise factor into a success factor. After all, if your heart is in it for the right reasons, you’re already going in the right direction.