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By Carol X. Vinzant

For registered reps leaving the safety of a wirehouse, picking the right firm for the back office work can be the hardest part. The task is as confusing as choosing a new cell phone service--and about as fun.

How should a fledgling advisor navigate this new terrain? First, remember that clearing and custody is largely a commodity. Cost is negotiable and not the main reason advisors pick one firm over another.

The choice is largely a tradeoff between independence and service. The three main options are joining a full-fledged broker/dealer, an advisory firm, or a bare bones clearing firm.

Serving the increasing Diaspora of brokers has become big business. Fifteen years ago Charles Schwab cracked opened the door to advisors. Now it's an industry with about $1 billion of revenue and dozens of players. Schwab still dominates with about $230 billion under management in its advisor division. The next biggest player is Fidelity with about $60 billion, followed by T.D. Waterhouse with $17 billion.

"It was incredibly confusing," says Jim Whiddon of JWA Financial in Dallas, who fled the wirehouse business four years ago. There were simply too many options, he says. Registered reps, he says, just look at him with "a blank stare" when he explains the process to them.

The most individualistic choice is going straight to a clearing firm. Clearing firms are the plumbing under Wall Street. During the day stock orders seem to zap back and forth. At the end of the day, the clearing firm has to do the real the real nuts-and-bolts of trading. In the old days, this was done with safes rolling down Broad Street, jammed with stock certificates and cash. Nowadays, clearing firms move money and shares around by computer.

Rather than have each clearing firm balance their transactions with every other clearing firm, Depository Trust and Clearing Corp. stands in the center of the market. At the end of the day, each clearing firm figures out its total net balance, whether it's collectively bought or sold more shares of Microsoft, Dell and each individual stock, and whether all its clients together, balanced against each other, owe or are owed money. Then each firm does a massive transaction with Depository Trust to settle up.

Clearing firms all offer competent service, but not much handholding. They may offer research, but it's probably not proprietary.

"It becomes an element of how much responsibility the investment advisor wants to take on for himself," says Jim Crowley, a managing director at Pershing. Pershing has direct relationships with some advisors, particularly those who are just starting out.

At clearing firms, the fee structure is different. Instead of taking a piece of your fee, the clearing house generally will have you pay a per trade commission. The rates you pay will be similar to what retail customers pay to trade online, but instead of going to an online broker, the advisor will connect through the clearing firm's platform.

On the opposite end of the spectrum is joining a broker/dealer, which may be the most comfortable fit for someone leaving a wirehouse. If you're going to keep any commission business, you need a B/D. Some brokers start the transition to fee-only planning this way, at least until their non-compete agreement expires, says John Sestina, one of the originators of fee-only financial planning who is based in Columbus, Ohio.

The major advantage is all the research, clearing, compliance and administrative aid. When you hook up with a broker/dealer, it's almost like you're opening a franchise of a tested product.

"They have taken care of all of the trading, all the back office stuff you need, but you've got to do all the front work yourself," says Rick Hellberg, who is happy with his relationship with Commonwealth Financial Network.

He passed up firms that offered a 100 percent payout but would charge him for various services and products. For a broker who offers a healthy range of service, the range is 60 percent to 90 percent payout. One broker/dealer that Hellberg once worked with only had a 45 percent to 55 percent payout, but that included his office space.

The most essential service a broker/dealer offers is compliance, he says. "Every time you turn around the SEC or the NASD is requiring some other kind of paper," he says. "If I had to do it myself, I'm sure I'd be in compliance violation every other week."

Commonwealth once vetoed a product Hellberg wanted to use, an equipment leasing program that was supposed to lend only to big companies but started taking on sub-prime firms. Hellberg says those restrictions might exasperate other advisors, but he'd rather not have the due diligence hassles.

According to Phillip Gainsborough, president of Gainsborough Financial Consultants, a fee-only RIA in Los Angeles, advisors have to determine if the firm's product line compromises the advisor's independence. Do they have an incentive to sell proprietary products? Do certain money managers pay for conferences?

"In our case, we just hire or fire the managers with a push of a button. We don't have much loyalty," Gainsborough says. "Our loyalty is to our clients."

Some advisors are also worried about firms that offer too much service--directly to their clients. Schwab scares advisors mainly because it offers customers so many other avenues and resources for advice. They worry that the giant company may try to poach their clients one day.

"With Charlie Schwab I just have a funny feeling one day, they're going to be in direct conflict of interest with me," Gainsborough says.

A happy medium may be joining an independent advisory firm. Advisors in these firms generally send out their own client statements and worry about compliance themselves.

"One of our commitments is that we will never, ever, ever go directly to the investor," Kate Monaghan, associate director of marketing at Lockwood Financial Advisors in Malvern, Pa. "We believe the investor needs an advisor."

Last year a group of 82 advisors got together to form National Advisors Trust, a mutually owned custody and clearing firm that has taken in $355 million since January and expects to hit $1.5 billion by March. This is the first firm of its kind, which was formed specifically for and by advisors, not just as an afterthought to an existing brokerage or clearing firm.

"There are a lot of different ways that an advisor feels somewhat threatened," says Katherine Marshall, senior vice president of investments at National Advisors Trust.

Unlike other custody firms, says JWA's Whiddon, Advisors Trust lets advisors choose nearly every product line available. If there isn't a relationship with the provider, they will make one.

Among all these options, there's no one right choice for everyone, just the best fit for a particular advisor.