6 Crucial Things Breakaway Advisors Need to Consider

Advisors attracted to the idea of breaking away and starting an independent RIA are often frustrated by restrictions imposed on them by their current firms. They want to serve clients in ways they think best. Powerful wealth management technology and related consulting support are making it possible for these growth-oriented advisors to strike out on their own.

“It’s never been easier for advisors to start their own firms. They have access to two important pieces of the puzzle: First, powerful wealth management technology that is superior to the tech at the wirehouses, and second, expert help for setting up and running their practices. Advisors should feel confident to break away.” 

– Becca Knauss, Founder, The RIA Works

What does it mean to be independent?

Here’s a stat to consider: Did you know that about 1,500 advisors go independent every year, and 99% are happier for it?1 

Contrast this with advisors who leave one broker-dealer for another, sacrificing a lot of freedom. Broker-dealers attract breakaways by offering a payout to join their firm.

While the upfront payout can be tempting, it comes with strings: Important decisions like who to custody with, which investment platform to use, which products are available, and more are decided by the wirehouse, broker-dealer, or bank. This creates inherent conflicts of interest as advisors can’t always act in their clients’ best interests. Joining a BD limits your freedom.

In addition to having more freedom by establishing your own RIA, you’ll also benefit from the long-term capital that is created as your firm grows. 

“The sale of a successful RIA could return a large multiple of earnings before owner compensation, EBOC. For example, in September 2019, Goldman Sachs acquired United Capital, an independent RIA, for $750 million in cash. The IRS would have taxed this as capital gains at 20 percent rather than as income at 49 percent.” 

– John Phoenix, Partner & Co-Founder, Wealth Advisor Growth Network

What are the first steps to breaking away?

  • Consult with experts in this space, such as Wealth Advisor Growth Network (WAGN). TheWAGN leadership team members have run, built, grown, and sold firms. Now they’re focused on helping independent advisors like you accelerate growth and realize potential. WAGN can also provide capital to start your own firm.
  • Seek legal advice. It’s important to understand the terms of your employment, including non-competition and non-solicitation clauses, and notification periods. 
  • Decide whether to create your own practice or join an existing one
  • Identify your target clients. This fundamental decision will drive other decisions down the line, including your service menu and the supporting technology you’ll need.
  • Define your investment and money management philosophies to inform the types of assets you’ll invest in and how you will manage money.

How can I access capital to launch my firm?

  • Lead advisor – If the breakaway’s lead advisor has done well, he or she may be willing to provide the working capital or forego a salary for some number of months in exchange for a majority stake in the firm. 
  • Bank loan – Secure a Small Business Administration-style loan from a bank. 
  • Strategic partners – Long-term strategic partners, such as WAGN, can put up working capital in exchange for a minority equity stake in the firm. In addition to capital, these types of partners often have deep experience working with RIAs, as well as useful contacts in the industry. Strategic partners can also help with early decisions that range from staffing and compensation plans to real estate and fixtures and fittings.
  • Accelerate collection of client fees through conversion – Many billing system conversions are handled during the second stage of the conversion process, which can create as much as a 90-day drag on cash flow.

Could my firm really compete with much bigger companies?

Technology has gotten faster, better, and cheaper. An independent firm can now take on the largest brands in the industry, a concept unheard of two decades ago. Service providers, like LibertyFi, can partner with you to configure the technology and operate it on your behalf.

Don’t believe the hype!

Lots of breakaway myths swirl around our industry. Two of the biggest ones are false:

  • It’s too hard. It’s not too hard to break, and it isn’t too difficult to run your own firm. There are too many partners out there to help, and the benefits far outweigh the downside.
  • I can’t replace what I have. Almost any platform can be replicated with the right partners, from technology to service menu and investment options (i.e., alternatives).

What if I need help with compliance, investment management, etc.?

Our network of strategic partners focuses on the non-differentiating areas of the breakaway so you can concentrate on meeting with clients and getting signatures. Our partners offer services for:

  • Custody – generating the custodial paperwork you need to establish accounts and transition clients. 
  • Investment management – providing investors with personalized investment strategies at scale.
  • Compliance – reviewing business processes to ensure they promote regulatory compliance. These partners can also help with an SEC audit.
  • Business experts with over 45 years of combined experience building and running RIAs.
  • Advisor services, including tools, operational solutions, and investment support services.
  • Insurance services to cost-effectively insure and protect your most valuable asset, your firm.

Contact us to get started

LibertyFi and our network of partners have deep expertise helping breakaway advisors launch and run their RIAs. Contact Alli Jordan to learn how we can help you start your breakaway. 

1 TD Ameritrade Institutional 2020 Break Away To Independence Survey


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