How Can You Help Ensure a More Successful Transition to Independence?

Today, for any number of reasons, more advisors than ever are choosing the independent route. It’s a big task which requires careful planning and commitment, but ask advisors who have gone through it whether the time and effort they spent to ultimately achieve independence was well spent. They’ll very likely respond with a resounding “Yes!”

Over the years, our firm has worked with dozens of advisors to guide them along the path to independence. This month we thought we would share some advice to advisors who are considering making a transition to this new business model. Our hope is that reading and having this information will help advisors view the prospect of transitioning to independence as a bit less daunting–and maybe even a little easier.

1. Spend time creating a solid plan up front, then commit to it within a realistic timeframe…

It’s not uncommon for advisors without a clear, solid plan to get stuck in transition. Speed and commitment on your part are imperative if you’re planning to shift completely to a fee-based structure. In our experience, advisors who make a gradual transition can set themselves up to seriously compound their time and margin compression problems. What’s imperative is getting to a single, focused business model–while at the same time rapidly increasing fee revenue by moving existing clients over. That said, it’s really up to you how quickly you want to communicate or meet with clients to discuss moving their accounts over to your new business model. We’ve helped advisors who wanted to make the move in three months, or in multiple phases over the course of 12-18 months. The key is developing a realistic plan at the outset, then sticking to it throughout the transition process.

2. …then be prepared to roll with the punches.

As a follow up to #1, while having a solid plan is essential, there are many moving parts associated with transitioning to independence. No transition has ever gone off perfectly; you can safely anticipate that you’ll experience at least a few complications as part of this process. There will be missing or incorrect paperwork, clients who take unexpected vacations at the most inopportune time, issues with assets transferring over in a timely fashion, unpredictable weather, technology glitches, and any other number of random obstacles throughout your transition. The important thing is that you not get bogged down in minutiae, buried in a problem with one client here or account there. If you have the (very realistic) expectation that there may be setbacks along the way and accept that as part of the process, you will be much better positioned to continue moving forward with a positive attitude and continuous commitment.

3. Be realistic–and aware–about your revenue.

As you look to transition to independence, you’ll likely now be a business owner who is newly responsible for many areas which may have been previously provided for you. Because of this, it’s more crucial than ever that you operate with a fee structure which feels fair and comfortable to you and your clients. Maybe what you’re currently charging clients feels just right to you–or perhaps, given the long list of services, professional collaborations, industry experience, and other benefits you offer your clients, it makes sense to reconsider what you charge for your services today.

Chances are you’re well aware of the intangible benefits of transitioning to independence: flexibility, time, autonomy, etc. They’re probably the catalyst(s) that moved you to consider making such a major move in the first place. When it comes to dollars and cents, though, you’ll need to work on estimating your costs before and after a transition. To help get you started creating a simple, conservative analysis of your business today and tomorrow, here’s a basic list of your costs and revenues to consider:

  • Fee-based (wrap) revenue–you can use your average fee times the number of fee-based accounts
  • Commission overrides
  • AUM overrides
  • Planning fees
  • Insurance fees (a direct relationship can mean a 100% payout)
  • Commission income
  • Your fee structure today and after a transition (if you’ll be making any changes)
  • Trading fees paid by you or clients
  • Platform fees paid by you or clients
  • Commission trading fees
  • Software fees
  • E&O fees
  • Licensing fees
  • OSJ fees
  • Franchise fees

4. Stay focused on your goals and the big picture.

With proper planning, you can anticipate a relatively smooth transition. But rest assured, you’ll have the occasional difficult day. When things feel tough, remember that there were likely several variables that brought you to the point where you felt an extreme need to create a new–and better–situation. What truly moved you to initiate change? Did you want more autonomy? More time to spend focusing on the business activities you’re best at and enjoy most? Or the ability to share one consistent message or vision with clients or prospects–something that feels completely right for you as an advisor with your own unique experiences and beliefs? Try to remind yourself of these goals when you’re putting out small fires here and there.

5. Get comfortable and passionate about the message you’re sharing with clients.

There are many reasons your clients chose to work with you. One of them is because they look to you as their trusted advisor. If you’re excited, passionate, and confident about making this significant business move, it will spill over to your clients who will feel it too; as a result, most will share your positive feelings and will want to join you for the next leg of your journey. Of course, some clients will choose not to make the move with you. What we’ve discovered from going through this process with advisors for many years is that there will probably be a handful clients who decide not to join you: a few you expected to leave behind, and a few that may surprise you and choose not to move with you.

In addition to moving business under your own RIA, transitioning to independence also often involves a broker/dealer or custodian switch. Change is inevitable. Every major change may result in some client attrition. Therefore, the fewer changes you put your clients through the better. That said, now is a great time to group all of the changes and improvements you’ll be making to your newly enhanced business model into one compelling conversation or communication with clients. It’s also a great idea to have new, visually different (likely enhanced) deliverables to show clients as you discuss the many benefits they will now enjoy as a result of you making your transition.

6. Create a support network of experienced professionals to walk with you through the process.

Think about how to best design your transition plan operationally. Once you’re ready to make the switch, you want to be able to focus entirely on meeting with clients and talking with them about the exciting changes you’ve chosen to incorporate into your business. Try to find a partner that will handle all relevant client transfer paperwork, as well as guide you along your plan timeframe.

Talk with other like-minded advisors whose business models you’d like to emulate, who have already reached the goals you’re seeking (whether going fee-only or establishing a hybrid RIA, for example). 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. If your experience is similar to ours, you may be surprised to discover that most, if not all, these advisors will tell you they wish they would have made the transition sooner.

If you need a broker/dealer relationship, make sure you’re with the right one. Analyze your current costs and income stream. If you were able to convert smaller accounts to fees (utilizing new systems without account minimum limitations) would that make a difference? If you decide to go the hybrid route, consider what dual registration will look and feel like.

And of course, thoroughly research your custodian options to determine which one is best suited to service your unique business. This business partnership will be especially invaluable to you both during and after your transition.

If you keep these important guidelines in mind along your journey of transitioning to independence, you’ll be helping yourself to ensure greater success–and a smoother path–to reaching your goals.

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