Should I go Independent?

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Sep 8, 2010 10:41 pm

Here is where I am today:

I have been an FA since 2001.  I started from scratch and have done fairly well.  Today I serve about 225 households and care for about 45 mil.  My clients are spread out over 25 states, in large part because I have earned the trust of my clients out-of-state children.  According to the surveys of my clients, people think very highly of me.  I place in the top 10% of my firm.  I have built a relationship-based, planning-oriented practice and have been a CFP® certificant for several years.  Revenue grew every year through 2007 when it hit about 300, but this year it will be around 250.  My asset mix is 55% funds, 15% bonds, 10% stocks, annuities 15%, the rest is cash.  My biggest account is 2 mil.  I have lots of accounts that are 400-800.  I have never imposed any account minimums so I have quite a few small accounts as well, but they are almost all investing each month.

Recently I have been second guessing my choice of employer.  The new emphasis on revenue, and the concerning movement of money into a relatively new fee based platform, has left me wondering if I should leave.  The idea of being independent is enticing for several reasons. 

I would no longer have the possibility that I will dip below a company sales goal.  A year ago, I could get clear down to 14 a month and simply be a dissapointment.  Going forward, if I am below 18 I will have 4 months to get back over 18 or be fired.  I have every intention of growing my practice, and am not content with 18, but the possiblity exists that we could have another major bear market in which my time is consumed by defensive call taking, and my numbers will go below 18.  I don't want to be forced out.  I would rather go now.  I am confident that these new sales goals will result in many FAs creating a "solution" for a client just to hit their number...so there is greater risk of being drug through the mud they are creating. 

I could transition my practice to be a RIA exclusively, but charge a reasonable fee.  (My current company has a wrap account that I believe is too expensive -1.35%- but if I discount it down to anything less than 1.15% they cut my net.)  I would have multiple platforms to offer a fee based account, and could charge hourly or per plan.  Maybe this would go a long ways to helping me fell more like a competent advisor instead of simply a salesman.  Or I could just keep acting as broker and deal with the occasional slimy feeling.

According to the numbers an independent b/d shared with me, if all things were the same, I would net about 25 more a year than I currently do.  Of course, the numbers will not all be the same, as not all of my accounts will follow.  I wonder about the out of state clients.  It would seem they would be less likely to follow.  My biggest account is 2 mil.  I have lots of accounts that are 400-800.

I like the idea of creating a team of advisors.  FAs, attorneys, CPAs all under one roof.  As an independent, this has potential.  There is zero possibility of this arrangement occuring now with my employer.

My employer intends to add several more offices to my town. Already, they have more offices than we have gas stations.  I can't help but think that the addition of more offices, occupied by inexperienced advisors, is going to perpetuate the perception that my company is for the little guy, who is not in need of sophisticated planning.  I want to be an advisor that is considered competent, not simply a stock broker.

I love the idea of owning my business.  I think people think more of businessmen who are independent.   Am I mistaken?  I think more of a CPA with his own name on the door than one with H&R Block...So in my way of thinking I will be better posiitoned to gather assets.  BTW, I opened over 120 accounts (not households) last year so I am still growing.

I would be grateful for your thoughtful input.  I would appreciate any suggested resources as well.

Sep 8, 2010 11:35 pm

YES!  As soon as I felt more valued as a salesperson rather than a good advisor I made the decision to leave.  The best resources I've talked with are Fred van den abbeel at Trade-PMR and Peter McPhee (consultant in making the transition).  They've answered my questions and are helping me make the transition.  I'm days away from my resignation and starting the filing to be registered with my State.   I've got my passion back and am very excited about the new opportunity and the options are wonderful.  Told family and friends and they are all eager for me to change and get started.  I did look at the hybrid model but after conversations with local attorneys and cpas they all agreed that commission models are difficult to refer clients to.  They'd much rather deal with a fee based RIA. 

If you start questioning your place in the empire, it's time to leave.

Sep 9, 2010 10:33 am

OK, first, let's start with this:  Hi, my name is Sunchaser and I'm with EDJ. 

You don't like Advisory Solutions, but you are OK with going all fee based?  My personal opinion is that the entire industry has been brainwashed, like the attorneys and CPAs you've been talking to, into thinking that If you are an RIA or run a 100% fee based business it is automatically better for the client.  There are plenty of situations where it might be better for a client to be transaction based rather than fee based.  You probably recognize that in your own business right now.  I don't believe there is a perfect solution for all clients. 

It is absolutely possible to put a CPA, attorney, and an EDJ office in the same building.  I know of at least two in my area and there are probably many more out there that I don't know about.  Now, can you all share the same office?  No.  But do you really want to or are you just looking for the referral leverage that arrangement might give?  It might take some planning, but Jones will let you move your office into a professional building where you and your CPA/Attorney friends can set up shop. 

The idea that bringing more new Jones FAs into your town will make all of you look less professional is way off base.  Those new folks have nothing to do with you.  So what if they fail.  That just makes your success and your expertise all that much more evident to the folks in your town.  If you're that concerned about who they bring in, do a GKN plan and control that yourself.  If you don't want them to open a new office, share an office with your GKN permanently.  It would be good for you and for Jones.  You have plenty of assets to do it and you wouldn't miss the income from the assets you give away. 

You're already above the new minimums Jones is putting in place.  I'd guess if you're in a small town with not that many gas stations, you're probably profitable too.  So, you really shouldn't have to worry about the minimums.  Even if you only do $250K a year, you're fine. 

Jones has always been about creating revenue, BTW.  It's not a new focus.  I think the focus you are seeing has just come with more changes, positive ones in my opinion, so it looks like there is a bigger focus.  Do you really want the company you work for to try to avoid being profitable?   

With all that said, if you believe going indy is right for you and your clients, then you absolutely should.  Your not going to get a lot of negative feedback from anyone on this forum about it.  Like you said, there are a lot of reasons it might be better for you to be on your own.  Whichever way you decide, good luck.   

Sep 9, 2010 11:37 am

Spiff,

To be honest, I think you are being a homer on this one.  I don't think his primary issue is with wanting the team, or wanting to go all fee-based (he even acknolwedged that FA's are finding "solutions" to convert their clietns to fees), or the issue with so many offices, or the issue with the revenue goals.  It's ALL of those things wrapped together.  It's the model that is at issue here.  Nobody should fault Jones or any wirehouse for wanting to make a profit or implement high standards.  It's just part of the business.  But if you don't want to be subjected to those minimums, then that creates an issue for you.  Having 10 offices in your town might not really inhibit your growth, but what if you don't want to just be one of those 10 green offices with revolving doors?.  Commissions are not "bad", but perception is now reality in the marketplace.  If you think your service is worth 1% (which many RIA's charge), then why shouldn't you be able to charge 1%, and actually have a reasonable payout?

Spiff, Jones is trying, but honestly, the model is very dated in many respects.  It is very good for the advisor that can work within narrow boundaries established by others (and I am not referring to compliance related issues).  Some people would like to craft a practice that is more than just another green office with mutual funds for sale.

Sep 9, 2010 12:48 pm

This guy has already made up his mind.  I'm not sure why he even came on here to ask the question.  He's now looking for justification in his own mind for leaving Jones.  I'm not bleeding green on this one, just pointing out that what he perceives as very good reasons for leaving Jones aren't really all that good.

I have ZERO sympathy when I hear complaining about putting new EDJ guys in a town.  When you get to twelve within a mile radius, we have have that debate.  Whining about the new guys simply distracts you from your own focus. 

What's the difference in being one of 3 EDJ guys in a town and being one of 6 LPL offices in town?  Unless you do options or something completely different, you're still just one more financial planner in town. 

I disagree with you that our model is dated.  Our model isn't any more dated than the Wachovia office down the road from me or the Amex office a few miles away.  They're working under primarily the same model they have for decades, just like Jones.  They're not doing anything incredbly new and unique.  I guess you could make an argument that the entire brokerage business model is dated, but then who says that it really needs to change?  We all know that fee based business was a product of a brokerage firm trying to make a bigger profit, disguising it under the auspices of being better for the client.  I've liquidated enough wrap accounts in my days to tell you that it's not always in the clients best interest, but it's almost always better for the FA and ultimately the firm.  Like I said before, we've been successfully brainwashed.

Back to the OP - he would probably feel much better if he went indy.  He's not going to get over the nagging feelings of having to look at his production chart, or seeing the emails from Adivsory Solutions announcing another billion has been invested in the program.  Jones is going to eventually add two or three new offices in his town.  That's going to bug him.  Jones won't be raising our payout to match LPLs or RJ's.   Many of his issues with Jones seem to be more issues about his own insecurities than what Jones is or isn't doing for him.  If he thinks he would be able to better gather assets if the name on the door was Sunchaser's Investments, Inc. then he probably will. 

Sep 9, 2010 1:04 pm

[quote=Spaceman Spiff]

The idea that bringing more new Jones FAs into your town will make all of you look less professional is way off base.  Those new folks have nothing to do with you.  So what if they fail.  That just makes your success and your expertise all that much more evident to the folks in your town.  If you're that concerned about who they bring in, do a GKN plan and control that yourself.  If you don't want them to open a new office, share an office with your GKN permanently.  It would be good for you and for Jones.  You have plenty of assets to do it and you wouldn't miss the income from the assets you give away. 

Spiff, I have never heard of a permanent GKN plan where the FA's stay together in one office.  Though it makes a lot of sense!  I participated in a GK and this option was never offered.  Is this something new?  I have observed one situation in particular that a father/son wanted to stay together but were forced to split.  The details of this situation were especially distressing to me seeing how the firm went out of its way to spend substantially more money than it needed to.  The splitting into two offices will not generate a dime of more production yet will double expeneses.

Sep 9, 2010 1:40 pm

Please give me a ring would love to talk to you about some of your options.

Vito Ameno

908-902-1998

Sep 9, 2010 2:18 pm

[quote=Kaner]

[quote=Spaceman Spiff]

The idea that bringing more new Jones FAs into your town will make all of you look less professional is way off base.  Those new folks have nothing to do with you.  So what if they fail.  That just makes your success and your expertise all that much more evident to the folks in your town.  If you're that concerned about who they bring in, do a GKN plan and control that yourself.  If you don't want them to open a new office, share an office with your GKN permanently.  It would be good for you and for Jones.  You have plenty of assets to do it and you wouldn't miss the income from the assets you give away. 

Spiff, I have never heard of a permanent GKN plan where the FA's stay together in one office.  Though it makes a lot of sense!  I participated in a GK and this option was never offered.  Is this something new?  I have observed one situation in particular that a father/son wanted to stay together but were forced to split.  The details of this situation were especially distressing to me seeing how the firm went out of its way to spend substantially more money than it needed to.  The splitting into two offices will not generate a dime of more production yet will double expeneses.

[/quote]

I wouldn't go as far as to say there are a lot of two man offices, but it's getting to be more common.  I had to renegotiate my lease recently, at the same time as a buddy of mine here in town, and the leasing coordinator mentioned after the fact that we should have negotiated for a two man office.  I know Jones used to be very adamant that there was only to be one FA per office, but I think they're realizing exactly what the rest of us already know...when you save money on expenses, you put more money into profits. 

Sep 9, 2010 2:26 pm

Spiff,

I hear what you are saying.  My point is, our firm, and the "brokerage" model, is not necessarily for everyone.  For many, being an independant advisor or planner, or an RIA firm are a better fit.  Do you think Ken Fisher or Ron Carson or Robert Fragasso would have been able to accumulate billions in assets at Jones?  The model just doesn't dictate that.  You CAN accumulate billions at a wirehouse, but then there are ther things that even a wirehouse prevent you from doing. 

Personally, I see the brokerage business (and more so Jones) as a potentially very high-paying job, but not as a busienss you are building.  You are building a revenue stream for someone else, under someone else's rules, and that someone else owns.  You may get paid very well for it, and you may be your own boss, but it is far different when you own the thing. 

Just trying to play devil's advocate here.  The guy comes on here asking some reasonable questions, with some reasonable ideas, and all you can say is that basically he's an idiot and a whiner for wanting to leave Jones.  I have heard some pretty dumb arguments for wanting to leave Jones, but his concerns are pretty valid, IMHO.

Sep 9, 2010 4:02 pm

I don't generally disagree with you, but in this case I do.  And that's OK. 

What Suncatcher hasn't talked about is how he feels about the extra responsibilities he takes on when he goes indy or RIA.  Is the extra payout worth the work of being an actual business owner?  He mentioned that an independent B/D told him if all things remained the same, he'd net about 25% more.  Right now he gets to come into his office, turn the computer on and start his day.  No thoughts about payroll taxes, software integration, compliance, etc.   How good is he at hiring, real estate negotiating, payroll, computer hardware research, etc?  Those are all things that are part of being the actual business owner that he's not had to do at Jones.  Is that extra $25-30K worth the extra work?  That's assuming he takes enough clients/AUM to get back up to $300K next year. 

All of the things he's mentioned that are bugging him really don't affect him.  So what if Jones launched Advisory Solutions and he doesn't want to use it.  If he doesn't use it, who cares how expensive it is.  Who cares if Jones puts another office or two in town.   Do some recruiting of your own to make sure the new folks aren't completely incompetent.  Who cares if Jones is raising the standards.  You're already doing more than that right now.  And if he's in a small town, he's probably profitable anyway, so they don't really apply to him.     

If he wants to take his business to a purely financial planning, fee only, RIA platform, then he should just do it.  Don't make bunch of namby pamby criticisms about your employer to make yourself feel better about leaving.  It's entirely possible that he's outgrown Jones and there isn't a benefit in working with them any longer.  Great.  Move on.  Congrats and good luck.   

Oh yeah, Sun - there are people that read this forum that can probably figure out who you are pretty quickly.  There aren't more than a few hundred CFPs in the field, fewer who started in 2001, and even fewer with $45 mil in AUM.  It might take a little work, but if I still had access and the time I could probably send  you an email on your @edwardjones.com address.  Just a little fair warning that you might want to be careful divulging too much info on here considering the topic of your post. 

Sep 9, 2010 4:19 pm

Spiff, did you have too much coffee today?

Sep 9, 2010 4:20 pm

" I could transition my practice to be a RIA exclusively, but charge a reasonable fee.  (My current company has a wrap account that I believe is too expensive -1.35%- but if I discount it down to anything less than 1.15% they cut my net.)  I would have multiple platforms to offer a fee based account, and could charge hourly or per plan.  Maybe this would go a long ways to helping me fell more like a competent advisor instead of simply a salesman.  Or I could just keep acting as broker and deal with the occasional slimy feeling. "

I feel the pain, as I have struggled with the RIA question, and what Space says about small biz.

Not so sure any more that being b/d affiliated, selling insurance and annuities, being able to accept commissions (or work fee based at wrap) is slimy. Are you, really?

I kind of feel like the "virtue" of RIA is contrived, and I say that after a lot of experience and having the option to convert at personal profit. (Or at least, break even.)

Sep 9, 2010 4:32 pm

I agree that the virtue of "fee-only" is contrived by the CFP coalition.  For me, it is more about simplicity.  Simplicity of execution as well as in message.  That's why I have been pushing most new business into advisory accounts.  I haev become tired of managing 200 completely different portfolios.  I have portfolios with 10,000 in it, and portfolios with 1.5mm.  I haev stock portfolios, bond portfolios, fund portfolios, some with UIT's, some with CD's, some with annuities, and some with damn near every product mixed in.  I simply can't keep up.  I can't review every portfolio as much as I'd like.  And the problem is, my best clients now have the easiest portfolios to review, and my smaller, and sometimes mroe difficult clients now have the hodge-podge of potrfolios.  If I were strictly a product-focused broker, this may not be a big deal.  I knwo many brokers with 1000 clients that aer transaction focused, and seem to have no problem handling it.  Me, I just can't do it.  I would rather have 150-200 clients in model portfolios (my OWN models), where I can spend time focusing on managing the models, not 200 different unique portfolios.

But I don't look down on people that sell other products - insurance, annuities, etc.  I just don't want to be all things to all people.  I think this is where the RIA model is very attractive.  It tends to be cleaner and simpler for the firm, and easier for clients to understand.

Sep 9, 2010 4:32 pm

On the esoteric side, I wonder if having some kind of b/d independence is like having the proverbial girlfriend who will tend to your every need and desire ( even now appreciating what b/d really does behind the scenes to deal with the general public) - but when you marry her (go solo RIA or take or joing an RIA partnership) - the mystic vanishes.

I'm just saying, if you're a type A, go for it, don't be ambivalent (like me).

For a small shop, there is no question that the potential to meet every need (insurance commissions) is a net, even if you don't focus on it. Perhaps you should consider independent b/d.

Sep 9, 2010 4:38 pm

B, good point about simplicity.

Clients want solutions. I've done the whole gamut. B shares, C shares, wrap, brokerage research - pretty much turned my nose up at annuities (why fight it?).

Now I'm asking myself, am I a good planner, and review DI insurance, LTC, life - in the context of life planning, and even the new generation of guaranteed lifetime withdrawal benefit riders, which of course have to go on to annuity contracts.

The world has changed a lot in the last few years, I'm optimistic beyond November, but clients want simple diversified solutions and we all have to be vigilant about imposing our color of reality on clients.

Sep 9, 2010 5:34 pm

[quote=Sunchaser]

Here is where I am today:

I have been an FA since 2001.  I started from scratch and have done fairly well.  Today I serve about 225 households and care for about 45 mil.  My clients are spread out over 25 states, in large part because I have earned the trust of my clients out-of-state children.  According to the surveys of my clients, people think very highly of me.  I place in the top 10% of my firm.  I have built a relationship-based, planning-oriented practice and have been a CFP® certificant for several years.  Revenue grew every year through 2007 when it hit about 300, but this year it will be around 250.  My asset mix is 55% funds, 15% bonds, 10% stocks, annuities 15%, the rest is cash.  My biggest account is 2 mil.  I have lots of accounts that are 400-800.  I have never imposed any account minimums so I have quite a few small accounts as well, but they are almost all investing each month.

Recently I have been second guessing my choice of employer.  The new emphasis on revenue, and the concerning movement of money into a relatively new fee based platform, has left me wondering if I should leave.  The idea of being independent is enticing for several reasons. 

I would no longer have the possibility that I will dip below a company sales goal.  A year ago, I could get clear down to 14 a month and simply be a dissapointment.  Going forward, if I am below 18 I will have 4 months to get back over 18 or be fired.  I have every intention of growing my practice, and am not content with 18, but the possiblity exists that we could have another major bear market in which my time is consumed by defensive call taking, and my numbers will go below 18.  I don't want to be forced out.  I would rather go now.  I am confident that these new sales goals will result in many FAs creating a "solution" for a client just to hit their number...so there is greater risk of being drug through the mud they are creating. 

I could transition my practice to be a RIA exclusively, but charge a reasonable fee.  (My current company has a wrap account that I believe is too expensive -1.35%- but if I discount it down to anything less than 1.15% they cut my net.)  I would have multiple platforms to offer a fee based account, and could charge hourly or per plan.  Maybe this would go a long ways to helping me fell more like a competent advisor instead of simply a salesman.  Or I could just keep acting as broker and deal with the occasional slimy feeling.

According to the numbers an independent b/d shared with me, if all things were the same, I would net about 25 more a year than I currently do.  Of course, the numbers will not all be the same, as not all of my accounts will follow.  I wonder about the out of state clients.  It would seem they would be less likely to follow.  My biggest account is 2 mil.  I have lots of accounts that are 400-800.

I like the idea of creating a team of advisors.  FAs, attorneys, CPAs all under one roof.  As an independent, this has potential.  There is zero possibility of this arrangement occuring now with my employer.

My employer intends to add several more offices to my town. Already, they have more offices than we have gas stations.  I can't help but think that the addition of more offices, occupied by inexperienced advisors, is going to perpetuate the perception that my company is for the little guy, who is not in need of sophisticated planning.  I want to be an advisor that is considered competent, not simply a stock broker.

I love the idea of owning my business.  I think people think more of businessmen who are independent.   Am I mistaken?  I think more of a CPA with his own name on the door than one with H&R Block...So in my way of thinking I will be better posiitoned to gather assets.  BTW, I opened over 120 accounts (not households) last year so I am still growing.

I would be grateful for your thoughtful input.  I would appreciate any suggested resources as well.

[/quote]

You sound like a good candidate for indy. The many states of licensing, is expensive. Analyze carefullly who goes with you, maybe, and not, assign a math ratio. If the number is nort of 30m, good. If it is just you, then find another indy looking to share costs, as an office for you solo is quite expensive once you add everything up. Also, what kind of legal issues might there be with current employer? I'm in the middle of a legal issue, from going indy in 2009. Again, you truly sound like you are the right kind of person for it, and you are just about at the size where it will work. You're just a wee bit on the fence of that, and sounds like you know it. But, it's inevitible, isn't it...?

Sep 9, 2010 6:08 pm

[quote=B24]

Spiff, did you have too much coffee today?

[/quote]

No coffee, but I started my day with a big Coca-Cola and then started my afternoon with a big diet Mt. Dew.  So, there has been an abundance of artificial energy in my system today. 

That and there just hasn't been a good I love EDJ conversation on here in a while.  Actually, there hasn't been a lot of good anything here in a while. 

Sep 9, 2010 10:14 pm

Thanks for the input so far. 

Spaceman Spiff you made many statements that warrant feedback, so here goes:

 "You don't like Advisory Solutions, but you are OK with going all fee based?"

Yes because advisory solution is based on a menu of funds.  A RIA using an open architecture platform could offer bonds with no markup, do stock trades with little expense, and use virtually any funds in the universe.  AS is also too expensive IMO.  5 years ago a Jones broker would talk all day long about the unreasonable long term costs of WRAP accounts.

"Just a little fair warning that you might want to be careful divulging too much info on here considering the topic of your post."

If my company knew I was considering leaving, what are the consequences?  Seems to me that on any day, a quarter of the FAs at any company are considering a change.  According to the surveys Reg Rep have released, something like 50% are considering a switch right now.  Why would a company need to hunt down an FA who made this post?  Excuse the sarcasm, but this is a free country we live in and an FA has every right to leave his company.  Near as I can tell, my company's bean counters wouldn't shed a tear if I left anyway.

Perhaps that is the larger issue.  It feels more and more that my value to my company is entirely based on the revenue I generate. 

"I have ZERO sympathy when I hear complaining about putting new EDJ guys in a town."

My point about another office is insignifigant compared to the larger issues of sales pressure and flexibility and I shouldn't have even included it in my post.

Before you get going about pressure as an indy, I believe that self-imposed pressure is a whole different kind if pressure than pressure from "the man".

I certainly do not intend this to be hurtful, but I don't get how you Jones guys can post on this all day long.  How are you able to play around on this site and still be productive each day?

I hope a few more folks who made the switch to independence will post about their experience.  I just rarely hear of someone that went independent but then later returned to the mother ship...

Sep 10, 2010 2:48 am

Great discussion!  Sunchaser sounds like an entrepreneur in the making, so why fight it.  Go RIA!  Everyone needs to find the ecosystem in which they will be most successful.  I happen to think that RIA is also the model that makes clients most successful, so good for Sunchaser.  But that was not the primary subject of this topic.

Sep 10, 2010 6:39 am

Sunchaser - do it!

I was not at EDJ, I was at a wire. small book, producing manager, was doing about 300k when i left. My experience - i serviced the crap out of my clients for 6 months before my exit, and brought every one of them except for 2 that i didn't care about, with me.You sound like more of an entrepeneur than an employee type. Which points to Indy.

One thing i will say i am sorry about, is that i didnt talk to a guy like Fred at Trade-PMR when doing my due dilli. I went Indy B/D, never really considered RIA, and i should have, as i am 70% fee based.

Do your due dilligence. You only want to make one move, because if you make a mistake, and want to make another one, clients will be less inclined to follow you another time. Also, making a move will be a great opportunity to prune your book of the smaller accounts, which you should do.

Spiff - i have never seen anyone so covered in Kool Aide in my many years on this and other forums, but as long as you're happy, thats all that matters.