Going Independent
The Pros & Cons… and "Prons"?

By Victoria Bowen

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.

For many financial advisors, the biggest pros/benefits of going independent (after higher payouts) are the freedom to run the business as you choose and the open architecture with the ability 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 having the pressure of quotas or having to push 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. For many financial advisors, going independent will be their first foray into self-employment-the lemonade stand from fifth grade certainly doesn't count. Along with this freedom comes new responsibilities…and possible headaches. Suddenly, you no longer have a manager breathing down your neck and making sure your numbers are on target. While this may be a welcome relief for many, it can also be paralyzing. Many of us are motivated by deadlines, quotas and people-such as managers-who hold us accountable.

Collateral materials that you normally had at your fingertips, such as business cards, marketing brochures, and letterhead, will have to be designed and produced from scratch. You will need to make decisions about all aspects of managing and operating the business from overall strategic planning down to the day-to-day activities involved in running the office.

Having the Freedom to create and structure a business model that fits you and your clients is a great benefit, but with this freedom comes responsibility. There is a quote that says, "Freedom is nothing else but a chance to be better". You owe it to yourself and your clients to make planning a priority. A business plan is an important but often overlooked tool in helping to develop a clear vision of your business and creating a blueprint for running the business. Your business plan should provide you with a guideline to developing effective systems to manage financial, marketing, client service and compliance operations of your business. It will also help you identify tools and resources needed to create and maintain these systems.

Open Architecture/ Product & Service Choices (PRO)-Potential Pron #2

Have you ever gone grocery shopping when you were hungry and you 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 items that sound good at the time but that you don't know much about…and that you may never even eat and then realize that you didn't pick up the items that you really did need.

The same is true with the myriad products you suddenly have available to you once you're independent. At the outset, it might seem like a dream come true. But are you going to have the hours to devote to researching and analyzing such a vast array of options and still offer your clients timely responses and the attention they deserve? Probably not. While this pro has the potential to be a con by paralyzing or drowning the independent owner in a sea of information, it doesn't have to be this way.

Having an unlimited number of choices of products and services to offer to clients is certainly a great benefit, it allows the advisor to provide solutions for clients' needs rather than making the client fit a particular product. Again, this is where your business plan should provide guidance and keep you from becoming overwhelmed and losing focus. Consider your current client base and their needs. What products, services and tools are currently missing from your arsenal? Having a solid grasp on this information will not only help you when it comes time to choose a broker dealer or custodial platform, it will also allow you to stay focused in the early stages of your transition, where focus and time management will be key.

Firm Brand Name-(CON) Potential Pron #3

Some financial advisors list the fact that they don't have the strength of a firm 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 starting your career in order to gain credibility while having little experience. But once you build a client base over the years, it's you-the advisor-who is often bringing the most value to the customer relationships as opposed to the firm. This is something that is important to gauge when going independent. Do your clients truly feel the relationship is with you, their advisor…or is the relationship with the wirehouse? This stresses the importance of knowing your business and your customers. It is an important 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.

But that's not all. Brand names are not always the better name. As more and more wirehouses fall victim to scandals, a new trend has emerged: people are opting to work with independent financial advisors. As an independent, you're in charge of your own reputation. If you consistently deliver quality, ethical service to your clients, you'll enjoy the benefits of a solid reputation and a strong name-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. Remember, when you're independent, you are the brand.

Infrastructure (CON)-Potential Pron #4

You might be concerned that your sudden lack of office space and support staff when you go independent is a potential con. While it's true that the wirehouse provides you with things such as Support staff, Class A office space, upscale furniture, décor and other accoutrements,-when you work for them, you are still paying for these items courtesy of the override on your gross production which in most cases will be 60-70% of the pie.

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, your clients? Again, this involves making an objective assessment of your business and your current and future client base. Yes, as an independent you do need to pay for these things directly now, but you have control over what these items are based on their importance to your practice.

For example, 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 will allow you to invest more in other items that you feel 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.

Conclusion

Going independent is not for everyone. It is a process that involves addressing many factors and how they apply to one's unique situation. Understanding and weighing the pros and cons of Going Independent is one important step in the process, however, it is equally important to understand that they are not always automatic. Planning and preparation are keys to ensuring that pros that have con potential continue to stay pros. At the same time, when you make honest assessments of cons, you can begin to see that some may have long-term "pro" potential when thought about the right way.