Skip navigation
opening key heart independence fcscafeine/iStock/Getty Images Plus

Ten Tips For Advisors Considering Independence

Trying to DIY something as complex as the setup of an independent financial advisory practice can lead to complications, costs and headaches.

Everyone at one time or other dreams of owning their own business. For investment advisors, transitioning to independence can come with advantages, but it also involves specific risks and requirements not found in other industries.

Starting an independent practice has many moving parts. Creating a checklist of what needs to happen can bring some order to the chaos. Categories to consider include business entity formation, space acquisition, client transitions and identification of practice associates. Other considerations include choosing a custodian and licensing and compliance requirements. Most importantly, carefully reflect and ask yourself: Are you truly ready to own and operate your own business?

Working with professionals in all these areas—legal, commercial real estate, transition consulting—can smooth the process, help avoid pitfalls and provide a team to answer hard questions. Trying to DIY something as complex as the setup of an independent financial advisory practice without professional help can lead to complications, costs and headaches.

Here is a roundup of 10 tips to consider when starting an investment firm based on a recent webinar our team hosted.

1. Have a vision

If someone says they want to start their own firm, often it’s because they see ways to make improvements for the client. Before committing to starting a firm, visualize what would be different in a new practice—how would clients’ needs be better served? What would employee culture feel like? Just as important, consider what works well in the current situation and should be replicated in the new practice. Have a clear vision early on of what the practice could look like to guide the startup process and keep it on track.

2. Decide on business model

There are different paths to independence. Some advisors may wish to start out as an investment advisor representative of a larger RIA firm, while others may want to establish an independent RIA. Still, others may opt for the hybrid approach of dual registering as an RIA and a broker/dealer.  Analyze the multiple available options to determine the best fit for you based upon your skills to operate a business and support your practice.

3. Conduct a skills assessment

Few individuals have all the skills necessary to run a business, especially if they’re coming directly from a W-2 wirehouse position, so it’s worth assessing personal strengths and weaknesses. Remember, strategic hires can help fill the gap in weaker areas.

4. Consider financing

If financing is required, the lender will assess ownership’s management of compliance, human resources, legal issues and the full range of management responsibilities. The future cash flow of the business will serve as collateral for financing, so lenders need to be confident that the business owner has the skills needed for the practice to be successful or has hired appropriate team members to fill any gaps.

5. Consider personal financial status

Setting up a new business can be disruptive to a personal financial situation, so it’s wise to plan for a period of reduced income. Changing broker/dealers or custodians can result in temporary delays in cash flow. Some loss of clients may occur. Riding out the lean times without having to pull the belt too tight will be easier if one goes in with a personal emergency fund to draw upon.

6. Be ready for financing

Should financing be needed, a lender will need to see three years of tax returns, business and personal financial statements, compliance documentation and a set of pro forma statements for the planned enterprise. Having those documents ready to go will speed up loan approval.

7. Get the legalities sorted

Working with a specialty attorney early in the process to review any and all contracts and affiliation agreements is essential to understand any potential parameters related to what you can and cannot do upon separation.  An advisor needs to know the legal (including regulatory) and financial implications of moving their book of business before committing to do so.

8. Choose a custodian

Regardless of the business model chosen, an independent needs to select a custodial firm, and this process requires time and due diligence. Repapering clients to a new custodian can be a lengthy process, so it’s best to start early.

9. Plan for surprises

No matter how well one plans, surprises can always arise. One of the most common is finding out that one’s current firm won’t allow moving the book of business without an up-front payment or a lengthy legal battle. Working with a team of professional consultants experienced in RIA transitions can help avoid many of these issues.

10. Plan for succession from the start

An exit strategy may seem like the last thing to think about when starting a business, but the truth is it’s never too early to start succession planning. Advisors leave the business for a variety of reasons besides retirement: career change, relocation to follow a spouse, etc. It’s important to have a plan in place to protect and recoup the firm’s value from the very start.


Alicia Chandler is president of Indianapolis-based Oak Street Funding

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.