Think about some of the most fruitful conversations you have with investment clients. Chances are you make a solid plan for their financial future by carefully considering all factors on the horizon, both short-term and long-term. When the client agrees to take action, they trust the decision will bear fruit in the future because all options have been carefully considered.
In broad terms, financial advisors considering a move to independence should take the same approach in making their decision. However, many seem to become myopic, seeing only the short-term steps needed to make the move while discounting the long-term advantages of taking control of their own practice. A look beyond that seemingly safe regular paycheck often reveals a wealth of opportunity that is within reach.
Compensation Packages Outweigh Front-End Set-up Costs
First consider the potential top line. An article in Financial Advisor IQ reported that wirehouse payouts range from 30% to 50% (and much lower than this range for those considered to be “underperformers”). Compare that to the payout rates at Independent Broker-Dealers like Cutter & Company, a Registered Broker-Dealer and Investment Advisor, which begin at 75 percent.
Then look at the bottom line. Newly independent financial advisors will have to set up an office and incur more out-of-pocket expenses than they would working for someone else. But Cutter & Company provides back-office support, turnkey platforms and customer service which are arguably at a higher level than large firms can provide. Factoring it all into the compensation equation, Independent Brokers will often increase take-home pay by at least 20 percent initially.
The Vast Majority of Your Clients Will Likely Move with You
The most important factor in realizing the financial benefits is a realistic look at how many existing clients will move with a financial advisor to their new independent practice. Financial Advisor magazine online suggested 60 percent as a benchmark break-even number, reporting that “Obviously, it’s impossible to know beforehand if you can get 60 percent. But take a good, hard look at your book and be honest and realistic about your clients. Will they follow you or won’t they?”
The typical transition experience at Cutter & Company is that 90 percent of a newly independent financial advisor’s clients will move with them within the first six months, with much of that success due to the financial advisor’s strong client relationships and an excellent transition system provided by Cutter & Company.
Financial Advisor magazine online goes even further by indicating that “given the freedom and flexibility that exists in the independent space, it’s not unusual for highly motivated former wirehouse advisors to recapture the total value of their books of business 12 to 24 months after completing the transition — which will only further elevate the level of annual compensation.”
Bottom Line: Benefits for Both Financial Advisors and Clients
Independent financial advisors build their businesses in a manner that will truly serve their clients without barriers like proprietary products, sales quotas and big company bureaucracy. That provides a better financial future for both the client and the independent financial advisor. A conversation with Cutter & Company can provide even more insight into the benefits of becoming independent.
Financial Advisor IQ: Indie Firms Beating Wirehouses, Big B-Ds in Battle for Talent (February 22, 2022)
Financial Advisor: Wirehouse Brokers High Cost of Inertia (March 25, 2015)