It's Your Move!

The Case for Reps to go Independent

I recently asked a friend of mine, who's been independent now for about 5yrs after having been with a few different wire houses throughout his career (mainly via acquisitions), what it would take for him to go back to a wire. His response..."a very large gun to my head!"

Let's face it, you're building and running an extremely profitable, lucrative business...if that weren't the case wire house firms wouldn't own over 50,000 of them!  Warren Buffett loves to own businesses that have strong revenue streams, are profitable, can differentiate themselves and/or implement incremental increases in price w/o driving away or losing customers.  Most financial practices enjoy each of these characteristics if not more. 

A few more points to consider:

a- You're already independent

If you're like most reps I speak with you've had more than your share of new branch mgrs. hired by the firm (w/o your consultation) that have added little to no value to what you do and each was presented to you as the next big thing for your practice.  Yet if you are to grow or fail it's by your own doing. They give you no clients, they squeeze your expense account, you get very little sales support.  You're doing everything now an independent does w/the exception of hiring /firing staff and handling your payroll!

b- Very little support from your firm to grow

It's not uncommon for an independent rep doing $1mm to have a staff of 3 or 4, a wire has 1 assistant they share.  In fact one recent coffee I shared with a $1m+ producer told me she gets more ideas for business by meeting with her peers at continuing education conferences than she does from her local leadership.

c- Not getting your money's worth for the % of your revenue the firm keeps

A $599,999 producer at Merrill Lynch gets a 40% payout.  If you're getting a 40% payout from your firm that means you could be giving them as much as 25 percentage POINTS more than an independent rep doing the same exact business...many of them net 60-65% after expenses, even more if they share space with other reps. For a $599,999 producer that's another $150,000 in income on a yearly basis!  Take 20k of that and use it for business growth such as client appreciation events, more support staff, nicer office space, or just pocket it and pay for your kids to go to college, a vacation home, etc.  Why give up millions of dollars throughout your career unnecessarily?  In fact wires are now asking advisors to cover some of their insurance as well, so even though they "cover" your benefits the amount they handle is shrinking.

d- Double or triple your net worth

You now own an asset you can sell at some capital gains! Every wire has a "sunset' agreement that allows a rep to monetize upon retirement. Problem is they set the rules, right down to the successor you choose, and the price! What’s more, the money you're paid is taxed as ordinary income because you don't actually "own" the business, your firm does!  Additionally the wires have told us with the aggressive packages they offer that your practice could be worth 2-3x your top line revenue when you're ready to phase out so why let them give you way less?  That said, firms like Ameriprise will give you a 5yr deal for 230% of your t12 then you execute a “Sunset” or practice monetization for another 1x, so the deal now just hit a potential 3.3x top line revenue!  that's nearly a half a million dollars for a rep doing 400k! In fact, I just executed a 3yr deal for a producer doing $760,000 in production…his transition package totaled $756,000 and paid him 44% payout on his production for 3yrs. Factoring in his 401k earnings when we also combine the transition dollars with his ordinary income from payout after 3yrs he earns a total of $1.65million after producing $800,000…that’s a net payout of 85%! (so staying put in the w2 world makes more sense if you at least get a “deal” to do so).

e- Tax advantages       

Write-offs...need we say more?! See "d" above as well.

f- Ability to lower costs/fees to your customers

No more haircuts, you're keeping more of the revenue with higher payouts as well.  You may have to charge a client 1.25% at the wire just to net 1%, then they're gracious enough to give you a 40% payout on that number.  So you end up seeing half of the total fee if you're lucky.  As an independent at a number of broker dealers you keep the whole 1.25% (minus small admin fees) and get 90-94% of that, potentially more if you’re an RIA...or you lower fees to 1% for your clients to come with you or to attract others from your're still keeping more $!

g- Freedom to develop your own personalized model

Choose to go fee only for advice similar to RIA, or only charge .8% while still offering the same advantages to clients they get elsewhere for 1.25% or more.  Add a CPA and tax advice to your practice, establish strong strategic alliances to refer business back and forth, build your own super group of partner advisors, create your own family office or recruit smaller/newer advisors to join you to work with your “c and d” level accounts. You don't have anymore pressure to push/sell certain products

h- Make more money!

i- Creatively design your retirement, sell, consult, etc.


This is just the tip of the iceberg…more articles and chapters to come around the value of being independent, along with some of the pitfalls some advisors experience. 


Stay Tuned,

Rob Blevins