To be, or not to be, Indy is the question

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Apr 10, 2007 9:19 pm

I've been watching the threads for awhile, but haven't had anything pertinent to add.  Hopefully having my first post be a new thread doesn't piss anyone off.


Anyway, I'm a 3 year Jones guy.  My login is pretty much a joke, I'm not now, nor have I ever been a company man.  EJ is a good firm, I like most of what we do, but I'm coming up to a crossroads and starting to look around.   I've known all along that there is more money to be made by going independent, but that never really grabbed me too much.  Not that I didn't want the money, but I was content enough with what I had going.  I've been mostly happy.


I run a pretty simple business.  I was a new/new and have grown my office to $20 MM + in 3 years.  Most of my income is from mutual funds, annuities, and life insurance.  Some bonds, but less than 15% of my business is done there.  I like my mix.  Even though I do most of my business within the preferred families, I branch out where I see fit.  The American Funds reps aren't allowed in my office.  I won't use them.   I use 2 (or more) fund families with any client with more than $100K, and compliance leaves me alone because I can justify why I structure it that way.   My clients are with me because of the relationship and the style with which I manage their money.  


Like I said, I'm mostly happy with things.  My regional leader is fantastic.  He leaves me alone to run my business and I see him a couple times per year.  I'm in a high growth area and we are likely to split regions very soon.  I know which region I'll be  in after the split and I want nothing to do with it.  Very hands on RL who demands participation.  Not what I want.  I don't need it, don't want it.  I'm above standard as I hit segment 4 in under 2 years, I've got a good mix, good office, good location, good everything. 


My thought is that if I'm tossed into that region I may just go the indie route instead.  I run my office with little contact from the firm, other than audits.  I couldn't care less about diversification trips, I sell them and use my time share anyway.    My assistant will absolutely go with.  I really only care to take 65% of my clients with.  Although I operate just fine in a commission environment, I know it would be useful to be able to offer a fee based platform to some clients. 


My questions are:  What angles have I not thought of?  Which indie's would the best fit for a guy who is generally happy within the EJ structure?  What is the actual cost to get an indie office off the ground? (ballpark)  Do I bother trying to convert any of my existing clients to fee based or let them be? Truth is, I'd structure their accounts about the same way they are now anyway. 

Apr 10, 2007 9:33 pm

C-Man


Sounds like you're thinking things through quite well.  I think you can enjoy doing business the way you do while keeping so much more of the money YOU MAKE!! It wasn't Jones who got you the clients, it was you!! Keep them happy, do them right, and screw the GPs.  Why should Weddle make $9 million and Rich Malone make $7 million off your hard work?  You'll be much happier on your own and a lot richer for it!!  Jump man jump!!

Apr 10, 2007 10:33 pm

A couple of thoughts that might be of use to you...


1.  Buy "Starting Your Own Practice: The Independence Guide for Professional Service Providers" by Robert Fragasso.  While this book is helpful to anyone in the service industry considering striking out on their own, it was written by an investment advisor who went independent.  I was fortunate enough to speak with the author via teleconference and there is very little that this guy hasn't thought of about making the move.  Read this book cover to cover before you even start planning a move.  Among other things, this book will help you decide if independence is for you.


2.  Although it's apparent to me that you've had early success, you are on the low end of where you need to be in experience and AUM for a move to independence.  Sure, you'll probably find a good firm willing to take you at your current level, but another year of building your business and strengthening client relationships probably won't hurt.  I've heard five years in and at least $30 million AUM as an acceptable metric for going independent.


3.  Both Raymond James and LPL appear to be good fits for Edward Jones reps.  My recomendation is to visit both of them if they'll foot the bill.  RayJay may not based on your numbers, but I'm pretty sure LPL would.  I don't know where Commonwealth fits in the mix, but I would try to visit at least two potential firms if you decide that going indy is for you so you can get some perspective and make a more informed decision.  The last thing you want to do is move twice.


4.  Don't jump for the money...jump because owning your own business appeals to your personality.  Odds are, you may very well make less money the first year and you may go awhile without a paycheck (I went about six weeks).  You'll have some hard work, you'll face unexpected snags, and you'll have to take care of things that Jones takes care of for you now (such as paying your assistant).  If your move is all about more money, you'll likely be very disappointed initially (don't fret though...the money will come later!)


5.  Take your time making the transition and plan, plan, plan.  Keep everything top secret.  This is a game that you must play to win.  Operate (and act) like everything is fine.  Your exit should come as a complete surprise to your firm, so the fewer people in the loop, the better.  Fragasso even recomends making your vendors sign confidentiality agreements.


There's a million more things I could tell you, but if you take your time considering the decision and read the book, I think you'll be OK...good luck.

Apr 10, 2007 10:42 pm

What you say about AUM makes sense.  I wouldn't think about leaving within the next twelve months, as I want to get some things taken care of before/ if i take the indie route.   I figure I should be at/above $30million by the end of '07.  My concern is setting these people up in commission based plans if I am considering some of them to be candidates for fee based in the future, though.



Like I said, I'm just starting to consider this.  There is no hurry as I'm operating quite well within the Jones system.

Apr 10, 2007 10:44 pm

oh, and it definitely isn't just about the money.  My lifestyle can be supported at less than $70K which is well under what I make now.  It is really more of a lifestyle issue.

Apr 10, 2007 10:56 pm

OK then, if someone is a candidate for fee-based, use C shares...that migrates well to a fee-based platform.


My move was all about freedom.  The money that came later was just icing on the cake.

Apr 10, 2007 11:15 pm

Companyman-

Congrats on your focus, hard work, and resultant success.  It sounds like you have already thought a lot of things through.

Indyone knows what he is talking about, and I will echo his sentiments as to the important of advance preparation.  I was not from EdJones, but spent over a year planning my transition.  This advance work proved to be invaluable.

Apr 10, 2007 11:24 pm

c-man, when and if you jump, transition to fee based @ the same time. it is not as difficult as you may think. this will take planning and on your part & understanding why the fee based platform will be advantageous for them. in the mean time use c shares as it will help you when the transition comes.  i realize you think you have offered your client a full menu, but quite simply you have not.


If you happened to use asset allocation funds you may have a tough transition to fees. otherwise your menu has been limited, pm me if you want ideas on how to transfer and transition at the same time. it can be done.

Apr 10, 2007 11:29 pm

Companyman-


I am with LPL and it was a good transition.  I would tell you that it will take between $65,000-$85,000 the first year to run your office depending on your part of the country.  I spent $90,000 my first year including profit sharing contributions. 


I grossed around $570,000 in my first 12 months at LPL. 


The only other thing that I would reccommend is to ask the firms you are considering how many Jones' reps they have recruited in the past three years. 

Apr 10, 2007 11:37 pm
spikedkoolaid:

I grossed around $570,000 in my first 12 months at LPL. 



That rocks!

Apr 11, 2007 1:25 am

For your sub-$100K accounts, I would start to open them at the fund company. That makes it SO much easier to move, AND the client won't have to pay an ACAT fee.  Keep in mind that most Indys will give you some type of upfront money (1-3%).  I used the money LPL gave me to cover my client's ACAT fees. I spent about $2500 just doing that. Especially now that Jones is charging even for regular account transfers, it can get pricey.  However, covering the ACAT fees definetly helped to get some people who may not have come with me otherwise.

Apr 11, 2007 7:19 am

I went indy late last year. I looked at RJ, LPL and others. I was set up to go with LPL. At the last minute, I went with Woodbury Financial Services. I did a spreadsheet and compared cost etc. My only regret is that I did not do this years ago.  

Apr 11, 2007 10:02 am

I agree that you're doing the smart thing by looking around way ahead of time.


The only thing I have slightly disagree on is every time anyone asks about going independent, they always get the same 2 firms suggested to them. LPL and RAY JAY.


While both firms have their strong points, if you're not doing $500,000+ in production (and that is still VERY small at either of those two) you're not going to get noticed. Chances are you may be stuck under an OSJ who isn't there to help you grow.


My advice is check out both LPL and RAY JAY but also check out some "Not so giant" firms out there which could play more into your lifestyle and financial issues.


Look at issues of if the B/D helps you market for clients or teaches you how to sell alternative products to clients.


Are you, at some point, interested in building reps into your organization? If you have ever given it thought, check out B/D's to see what plans they have for recruiting for their OSJ's.


I know of one B/D in particular who is spending a little over 1.2 million this year just to recruit for their OSJ's. Something to consider.


Just my 2 centavos. Keep up your due dilligence.


Samps

Apr 11, 2007 10:11 am

Went LPL going on two months ago.  Looking back at what I would do differently....Kept my pipeline flowing through the transition...I basically quit calling about two months before my move and my production went way down at the end.  Prepare 6-8 months in advance...keep it quiet...I spent 16k-18k on buildout and computers, networking, signs, furniture, contact management software etc...I put my assistant on salary to make payroll easier...also a fixed cost on the long hrs early on...stay in touch with your 65% you want to move.


My only concern, as I've stated before, is getting a grasp of the platform.  So much more to offer and so much information flowing from LPL to me...THis is big boy/girl territory and it will take some  time to feel competent.  Also, LPL offers no contact management software...So I purchased ACT for Advisor add on...not as developed as the EDJ contact system, but as I use it I'm getting in a groove. 


Finally, my mental state is more relaxed today than at anytime in the last 4 years.  Expect your family to see you actually smile when you head to YOUR office. 

Apr 11, 2007 10:38 am

Jones is excellent at training you to think like an independent advisor. I especially like your attitude about your AF wholesaler because (not believing the company line)for me the light went on when I looked at my trails. This was my awakening.


In the nearly 9 years I spent with Jones the trails were a little over 40K. In three months as an independent, I created additional trails of 15K per year starting next year. Essentially utilizing the same or similar products when I was with Jones.


I realized  I had made the right decision for me and my family and as a result, my clients will be much better served going forward. I have not yet embraced fee based business, but it follows the trail philosphy. C shares are not the pariah that Jones makes them out to be, and clients deserve true diversification.

Apr 11, 2007 10:54 am

There are many indepenent b/d's out there.  I agree with Sampson.  In order to make a career move, you need to look at more than two options.

Apr 11, 2007 2:52 pm
Sampson:

I agree that you're doing the smart thing by looking around way ahead of time.

The only thing I have slightly disagree on is every time anyone asks about going independent, they always get the same 2 firms suggested to them. LPL and RAY JAY.


While both firms have their strong points, if you're not doing $500,000+ in production (and that is still VERY small at either of those two) you're not going to get noticed. Chances are you may be stuck under an OSJ who isn't there to help you grow.


My advice is check out both LPL and RAY JAY but also check out some "Not so giant" firms out there which could play more into your lifestyle and financial issues.


Look at issues of if the B/D helps you market for clients or teaches you how to sell alternative products to clients.


Are you, at some point, interested in building reps into your organization? If you have ever given it thought, check out B/D's to see what plans they have for recruiting for their OSJ's.


I know of one B/D in particular who is spending a little over 1.2 million this year just to recruit for their OSJ's. Something to consider.


Just my 2 centavos. Keep up your due dilligence.


Samps


Some valid points, but you're off on the OSJ level...LPL allows you to OSJ at $125K production...RJ is $200K or perhaps more.  Neither require anywhere near $500K to be your own OSJ.  Even if you are under another OSJ, why on earth would an OSJ who's getting overrides not want your business to flourish?


...and while smaller B/Ds can feel more personal, they may (emphasize may) also leave you hamstrung when competing for more sophisticated relationships.  Just make sure that your prospective B/D gives you all the tools you need to flourish.  IF you have everything you need and are satisfied with the payout, then yes, I can see advantages to smaller B/Ds, but that's a big IF.

Apr 11, 2007 8:02 pm

IndyOne,


I must hand it to you... you are one of the VERY few contributors that always gives an objective viewpoint regarding the virtues of independence. Accordingly, not every advisor runs their business the same as the other and that alone should encourage a lengthy and thorough investigative process by anyone thinking of becoming an independent advisor.


This board is littered with advisors, recruiters, b/d executives, etc. so you never really know what conflicts of interest lie beneath the posts so it is an absolute must for prospective reps to perform their own due diligence.


Good stuff.  

Apr 11, 2007 8:17 pm

Thank you...although if you stick around long enough, you'll see some of my biases and pet peeves, try as I might to hide them...


I'm generally pleased with my place in the world, although I understand that we don't operate in a one-size-fits-all environment.


I see that as a good thing...

Apr 11, 2007 11:25 pm

Your business sounds very similar to mine. Almost a year later after leaving the mother ship to go to RJ I could not be happier. Converting clients to fees is not as difficult as you think. They actually like it better once you've explained it to them from a value standpoint rather than cost as Jones has conditioned their "advisors" to do.


RJ is a very good fit for an EJ guy. Indy with plenty of structure if you want it.


PM me as you get more serious and I'll give you all the info you want.