Breakaway Hurdles

Breakaway Hurdles

If you prepare properly, independence can be incredibly liberating. If you don't, it can turn into a disaster.

Going independent is not for everyone. Running your own business, keeping more of your payout and having a flexible schedule are incredibly appealing for many advisors, yet we regularly encounter folks who are totally ignorant of the risks and requirements of making such a switch. From legal issues to staffing priorities, there are numerous details to work out. Making sure you are prepared to address them is the key to reaping the many rewards of independence.

Running your own financial services practice is more complicated than working as an employee advisor for a big firm. Going independent means that you will need to build infrastructure and hire the right staff so that you can delegate those tasks that don't match your own skill set or that you just don't have time to complete. The following are a few of the areas for which advisors making the move to independence need to adequately plan.

Legal Snafus

Unfortunately, there are a host of scenarios under which advisors transitioning to independence will need the help of an attorney. Having an experienced securities attorney at hand to respond to regulatory inquiries, potential customer complaints and other legal issues you may have never considered can save you a great deal of time, money and aggravation.

“Reps are often far too casual about reviewing their contractual obligations when they decide to leave a firm,” says Liam O'Brien, securities attorney with McCormick & O'Brien in New York. Non-solicitation provisions (for employees and customers), non-compete agreements (regarding timing, geographical constrictions and working for competitors) as well as confidentiality agreements can present some major obstacles to moving and should not be left to the last minute. Seeking the help of a securities attorney before you start your process can save you an enormous amount of time and money later.

Consider also that many firms may become downright vindictive if they find out you are planning to leave before you resign. To make it easier to farm out a departing advisor's clients to other brokers, less scrupulous managers have been known to put marks on the advisor's Form U5 (Uniform Termination Notice for Securities Industry Registration), terminating them for vague reasons before they resign. This can make it difficult to find a new firm, and to get up and running with different states and FINRA. An experienced securities attorney can help a financial advisor navigate this type of situation in several ways, including helping to supplement your U5 with an explanation of what really happened if your firm misrepresents your situation. In even more contentious situations, while it's uncommon, litigation can be required to counter false accusations made by a broker-dealer against a departing advisor. In situations where there is a question as to whether an advisor resigned or was terminated, a securities attorney can help to shine light on transparency of timing and clarify any negative marks on your U5.

We've also encountered countless situations where advisors don't realize that they will need to purchase Errors and Omissions Insurance (E&O) to protect themselves from any accusations of inadequate work or negligence. Yet they also often don't realize that just because they have insurance, doesn't mean that they will necessarily be covered for claims made against them while working at their old firms. If a complaint is made against you and your independent broker/dealer brings in outside counsel, you may be responsible for those legal fees, even if you have insurance. And consider that if the brokerage alerts its insurance carrier about a complaint made against you, and the insurance carrier then brings in its own legal counsel, your best interests will likely not be in alignment with those of the insurance carrier or your b/d. Having someone ready to represent your best interests is, shall we say, in your best interest.

Aligning Skill Set with Staffing Needs. Evaluating your skill sets, as well as your likes and dislikes, is a key step to going out on your own. For example, while you may love working with your clients and managing their money, there may be other aspects of running your business you may not like. Such as paperwork. Or marketing. Your business plan will need to address how you will tackle all aspects of your new business, as you most likely won't have the built-in support you had at your wirehouse firm.

For example, how do you obtain and maintain clients? Are you an effective and profitable advisor because you are a strong salesperson? Or perhaps your talent lies in building strong portfolios for the long term. If you don't do both well, then you may need to consider hiring someone to help out where you fall short.

Are You A Manager? Once you've truly identified your skill set and how you want to spend your time in your new business, you can determine where you need to hire staff. Yet, you'll also need to weigh just how much managing of employees you'd like to do. At a wirehouse, your assistant and staff are typically hired, trained, managed and compensated for you, and if they don't work out, they are let go for you. Management is a job of its own, particularly as you get your staff up to speed, but on an ongoing basis as well. And in a small office, hiring the right personalities is key to creating an environment that works for both you and your clients. If you are planning on hiring staff, you need to have a game plan in place that systematically trains your staff so that all your bases are covered and mistakes are avoided.

Evaluating Client Loyalty. Advisors sometimes misjudge their clients' loyalty to them versus to the firm. Before considering a move, take a close look at your book of business and evaluate what percentage of clients you inherited and may therefore be more loyal to your firm, versus what percentage of your clients are sold on you personally, and may therefore be more inclined to stay with you. While this may not be a perfect litmus test, evaluating your relationship with clients is an important step towards determining whether they are likely to move with you.

Will You Be Happy? Putting legal, compliance and other serious implications of going independent aside, perhaps the most commonly overlooked question you must ask yourself when you consider going independent is whether you'll truly be happy in your new environment. Advisors who have always worked for a buzzing wirehouse — offices filled with employees, meetings, energy, support, camaraderie — often fail to realize that being in an office alone or with one to two other people can be surprisingly quiet, and sometimes downright lonely. Will you be happy in this environment, and what will you need to do to recreate those aspects of the busy office that will no longer exist for you?

While all of these serious considerations can be obstacles on the route to independence, all can also be overcome with the right amount of planning. Independence can be a rewarding, life-changing and satisfying endeavor. Having a detailed road map to get you there in as fluid a manner as possible can expedite the process and help you reap the rewards sooner rather than later.


Jodie Papike is the executive vice president of Cross-Search, a third-party, independent broker-dealer advisor and executive placement firm. Cross-Search consults with financial advisors transitioning to independent broker-dealers, leveraging due diligence on over 100 independent broker-dealers. The firm acts as a concierge to financial advisors in transition, guiding them through the entire process of identifying their most appropriate options, negotiating a deal, and transitioning clients. For more information, please visit

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