An advisor’s choice to go independent is typically driven by a strong desire for greater freedom, flexibility and ownership. Yet with that desire comes what is for many the biggest hurdle in making the leap: Choosing between building your own firm with complete control and 100% equity, or joining an established firm with turnkey operations, infrastructure and an opportunity to gain an equity stake in a more mature business.
Ultimately, that decision comes down to asking yourself this: Do I want to bet it all on myself and my team?
The answer to that question starts with digging deep to understand what you’re really trying to solve for and identifying your personal and professional goals. Essentially, it means “beginning with the end in mind.” Once you’ve gained clarity and properly set your expectations, only then can you strategically vet the options and identify which path is right for you.
Take advantage of their existing scale and turnkey infrastructure, while still enjoying more freedom, flexibility and control than available as an employee of a brokerage firm.
Get cash and equity in the firm as key components of the deal, as well as earn-outs that will allow you to participate in your own growth as well as the firm’s. Equity often comes with a “seat at the proverbial table”—which means having a voice in building something much bigger than yourself.
Becoming an equity partner allows you to diversify your personal balance sheet and leverage the success of the group, not just your own.
It’s as important to be mindful of what you are “getting” when joining an established firm, as it is to understand what you are “giving up.” Surely, a key attraction is the equity, but many advisors look at this stake in another firm as nothing more than a lottery ticket, with no way of controlling how or when it gets monetized. In this day and age, our experience has shown that equity in the right firm can be a powerful and meaningful form of compensation. But it is incumbent upon the advisor to do his/her due diligence for clarity around the value of that equity and how the firm sees its end game in terms of monetizing it.
It’s equally important to be comfortable with the culture, community of advisors and leadership team—each of which plays a vital role in both an advisor’s success as well as the overall success of the firm. Do you feel the firm’s goals are aligned with yours? Is the community one you feel you can be a part of and will help you to grow?
An entire cottage industry has been born to support advisors on their path to independence, with custodians, service providers, broker dealers, product manufacturers, transition and consulting firms, and sources of capital available to fill-in the blanks where needed.
The opportunity to sell the business on the open market or create an internal succession plan down the road is a huge draw for many advisors, with the potential of a capital gains event and rewarding EBITDA multiple.
And, the ability to grow through inorganic means via recruiting and M&A, allows firms to exponentially multiply growth, as well as increase profit margins and operating leverage.
With all that full-on independence offers, the reality is that it’s not for everyone. Even with support, you are still a business owner, equally responsible for the firm’s success and failures. It’s an important distinction that has no doubt added fuel to the burgeoning growth of boutique firms: These firms have bridged a gap in the landscape for advisors who serve high net worth clients and are seeking greater flexibility and control with an equity upside—yet without the inherent risks and requirements of business ownership.
The good news is that advisors who are looking to gain greater control over their professional destiny have more choices now than ever before. What it really comes down to is understanding your own goals and aligning them with the opportunities that are before you—and whether you’re ready for the whole pie or just a slice.