The $64,000 question: If I go independent, will I be able to duplicate the platform, products and sophisticated technology that I currently enjoy at a wirehouse? And, what role will my new custodian play?
Here's a case that might help us answer that question: Ed and John, a wirehouse team for 21 years with $200 million in assets under management. A few years ago, Ed and John began to feel that their growth had stagnated. After a little brainstorming, they decided that local financial seminars and advertising as well as offering tax services for a fee during tax season would help boost growth. But they also knew that they would have to navigate an arduous approval process through multiple layers of management for seminars and marketing at the wirehouse where they worked, and that they would never be allowed to offer separate tax services. Simultaneously, they began to feel that they weren't utilizing enough of the firm's services to justify the more than 50 percent share of their revenue that the firm pocketed. They were also fielding endless questions from clients about the future of the Wall Street firm where they worked, and whether it would even exist in the next few years.
It was a cocktail that no longer worked for the pair, and Ed and John decided it was time to depart for the RIA world where they could build their own businesses. With primarily fee-based revenue and spotless compliance histories, they set off to find out what the major custodians could offer them and explore what life might look like on the other side.
The first distinction that became apparent to the team was that as RIAs licensed through the state or the SEC, they would have the freedom to:
- Collect fees for giving hourly advice;
- Collect fees for managing portfolios;
- Collect fees for a financial plan that includes investment advice;
- Self-brand their firm and advertise their services;
- Be completely transparent with clients;
- And, sell the business when they retired.
Ed and John found that the custodians could offer the team quite a lot:
- Practice/business management support;
- High-touch service representatives;
- Cutting edge performance technology that can be customized;
- Expanded investment choices;
- More research options.
They saw this route as their best path to progress and continued doing their due diligence with various custodians. They were convinced that being able to have expanded product offerings, such as access to money managers not available in their firm's inventory, and access to certain lenders with preferential rates, would help them grow their business and increase their earning potential. Moreover, they thought they would greatly benefit from the enhanced practice management services such as help with recruiting, introduction to M&A opportunities, and human resource support. Above all, they knew that the better pricing structure and transparency would be in the best interest of their clients and the vast majority would move with them.
Ed and John selected their custodian and opened their own RIA after nearly a year of due diligence. Within the first two months in business, 90 percent of their clients joined them. Now, 18 months later, they've added one more advisor to their team from their prior firm along with his $40 million in assets, and they have added an additional $75 million in assets through client referrals, local advertising and marketing events. In addition, their custodian was instrumental in helping them draft a direct mail letter to target additional advisor prospects, and now they have advisors to interview to fill one more office this year.
Ed and John are excited about their firm's growth trajectory and feel they are building a solid future for themselves and their families. Their only regret is that they didn't make the leap sooner.
Mindy Diamond is president of Diamond Consultants, of Chester, N.J., which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com.