Back by popular demand: More tips on making a smooth transition to independence

Our industry has shifted significantly toward the fee-based or fee-only business model over the past few years. And an ever-growing number of advisors continues to contemplate making the move to independence. Working for many years alongside advisors on this journey has allowed us to gather hands-on insight throughout those transitions. Last month we shared some tips to help advisors who are seeking to move to a more independent business model. We received some very positive feedback from advisors who asked that we consider adding a follow up to that message. And so, if you are considering the path to independence for yourself, here are a few more thoughts that we hope will help to guide you more smoothly along the road:

1. Challenge your habitual business beliefs and practices.

Why do you do certain things today? Just because your current processes and practices made sense in the past doesn’t necessarily mean they still do now. Exploring outside your comfort zone can be uncomfortable at first, but pushing yourself to do this will likely help you identify options that much better suit your needs today.

Last month we mentioned reconsidering your client fee structure. To expand on that idea, take out a yellow pad and brainstorm everything you’ve ever done for your clients. For example, do you design gifting strategies for your clients? Do you review insurance policies for them (even if you’re not the one who writes the business)? It’s probably going to be a long list, and that’s the point. You may only do nine or ten of the things on this extensive list for each of your individual clients, but of course you likely offer everything you’ve written down here to all of them—and the potential for you to handle anything and everything on this list for your clients is included in the cost to retain your services and expertise.

This exercise of identifying all that you can do and offer your clients can often be quite eye-opening and rejuvenating for advisors. No one is suggesting that you raise your fees, but as you consider becoming the owner and operator of your RIA, it’s really imperative that you determine the right fee structure (meaning you feel it’s fair to you and your clients…and you’re comfortable charging it).

2. Consider your business mix today…and whether you want to change it in the near future.

What percentage of your business is fee-based versus commission? Is that how you want it to stay, or would you like to transition more accounts to a retainer or fee situation? If you’re with a broker/dealer, when you look at your numbers, is the level of support you receive from them in line with what you pay? If you were able to convert smaller, commission accounts to fees (without being limited by account minimums) would that make a difference? And finally, if you decided to form your own RIA, consider what dual registration (with both FINRA and either your state or the SEC) would look and feel like.

Talk with other like-minded advisors (those who have had success going fee-only and/or those who have chosen to maintain a broker/dealer relationship). Whose practice or lifestyle would you like to emulate? Successful advisors are usually more than willing to tell you about their experiences—including what they’d do over if they had the chance and what they did right the first time around. Many advisors who make the transition to total independence are pleased with not only being able to simplify their business practices, but to begin sharing an often more straightforward business model with clients.

3. Pay attention to your strengths and envision your perfect practice.

If you’re like most advisors, you’re highly trained, extremely skilled, enormously caring, and incredibly passionate about providing a high quality experience for your clients. The majority of advisors, however, do a far better job of guiding their clients than  managing their own businesses. In order to create the most fulfilling business model and successful working relationship with your clients, it is critically important for you to have a sound business plan and a clear vision of where you intend to take your business in the future. For example, do you want to grow your business two or three (or more) times over—or would you prefer to achieve more of a lifestyle practice that may even involve scaling back and focusing on your favorite clients?

The problem is that the nature of the financial advisory business over the past several years has put most advisors into a reactive mode. Rather than utilizing a well-defined, systematic approach, they are struggling to keep up with a never-ending stream of change—and grappling with how to redefine their practices. They barely get through the workload on their desks, let alone create the time they need to pay attention to larger goals.

On this note, ask yourself some questions like: Which of your team members do you plan to have accompany you on your journey to independence? If you’re interested in growing your business today or in the near future, do you have the capacity to do that today? If not, do you anticipate that adding new staff will help to solve any issues you may currently be experiencing—or do you imagine it could possibly create more? Do you enjoy managing people?

Some advisors love having a large team; others prefer to manage very few, if any, physical staff, and instead outsource to a capable virtual team. For the benefit of your sanity and the long-term success of your practice, you may need to prepare to delegate some authority. Here are some of the key benefits advisors often experience as a result of choosing to outsource various non-revenue-producing areas of their business:

  • Many advisors free up 20-50% more of their time
  • Back office, trading, administrative, and other tedious activities can be outsourced in a cost-effective, capacity-building manner
  • Most advisors are able to focus more on helping clients with financial planning and building better client relationships
  • Often advisors can spend more time growing their businesses by marketing and developing relationships with COIs
  • Advisors’ team members are likely more motivated now, as their focus is now geared toward more client-centric activities
  • Advisors can still maintain control over client experience

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