Going Independent?

Wilmerding says the lawyer he eventually selected choreographed every aspect of his exit, telling him: “This is what you’re going to say. You’re not going to sit down. You’re just going to walk out.” He even wrote the resignation letter.

3. Transfer Your Registration Expeditiously

One headache you don’t need: a delay on moving your registration. “Registration goes hand-in-hand with moving clients,” says Eccleston. If you’re going the RIA route and you have under $100 million in assets, you’ll need to file papers with every state in which you work with more than five clients. Otherwise, the Securities and Exchange Commission will be your regulator (at least for now; that could change under new proposed rules). The standard paperwork — known as Form ADV — is comprised of two parts, one a check-the-box format that gives details about your business and clients, the other a brochure for clients that has 26 pages of instructions. It’s pretty easy to make mistakes. “If you’re not registered you can still talk to clients, explain what you are going to do,” says Market Counsel’s Bernstein. But you can’t actually sign them up as clients. “It might take a month that you are working pro bono in essence.”

4. Figure out Your Overhead for the Front and Back Office

This is the key to your profitability. Traditional brokers may receive 35% to 45% of their commissions and fees; RIAs get to keep 100% of revenues while independents typically keep 85% to 90%. Unlike the traditional broker, independents pay for overhead, including rent, staff, compliance, insurance, computers, and the stamps for your snail mail. Keep that overhead low, and you’re bound to improve your earnings.

Steven A. Rosner of Rosner Capital in Hillsdale, N.J., left a wirehouse to set up the home office he had always dreamed about through United Advisors. But the money doesn’t come rolling in instantly. Advisors who have made the transition recommend that you have at least three months—even as much as six months—of overhead cash in the bank. You may think you know exactly who will come join you in your new venture, but everyone says you can count on being wrong. Even if most of your clients agree to follow, money won’t begin coming through the door until the second full month that you are open for business.

Depending on how much freedom you prefer, you can figure out each issue on your own or move to independent firms that offer turnkey solutions. United Advisors, for example, offers a complete menu of options for anyone going independent, says Damian Peter, president. But independent firms like UA streamline their costs much more effectively than wirehouses. The offerings are scaled to broker needs so the broker business is not contributing to investment banking or research or other areas that don’t directly touch the investment advisory business.

Figuring out compliance can be particularly sticky. Mitch Vigeveno, president and chief executive officer of Turning Point headhunters in Clearwater, Fla., says some advisors prefer to join other practices under an OSJ—an Office of Supervisory Jurisdiction. The firm they join takes care of the compliance needs. On this point, RIAs need to be particularly careful to set up checks and balances for their practices, says Market Counsel’s Bernstein. The person who sets fees with clients shouldn’t be in charge of depositing the checks. “That’s how fees get skimmed.” Custodians like Fidelity and Schwab will certainly take good care of client money but they won’t inspect your auditing system or ensure that your compliance is up to snuff. RIAs need to ensure that happens on their own.

5. Get Your Message and Branding clear

So you’re all ready to go. Now you need to have ready a clear message to share with clients. “How will you define yourself as an independent,” asks Commonwealth’s Daniels.

 “Safety. Stability. Service.” That became the mantra for Chris Wilmerding when he began calling clients with news that he was now hanging a shingle with a new name and address. Clients will have many questions about the move and want to know your thinking. The branding process is also an opportunity for advisors to rethink the kind of business they would like to develop going forward. Advisors “may decide they don’t want to bring all their clients. They may want to leave certain relationships back at the wirehouse or refer to another advisor,” says Peter of United Advisors. Steve Rosner decided that he wanted to focus more on client service, so he handed most of the money management to professional managers.

6. Rehearse. Everything.

The first 48 hours are the most critical and difficult time you can imagine. As an independent, you’re in charge. You need to have your branding down cold. You also need to know how your computer works, how to enter new clients and the different kinds of assets and products they may own. “Margin accounts, check writing, trust accounts—each one of those has various paperwork [requirements],” says Daniels. Rehearse, rehearse, rehearse. The details are many and only one thing is guaranteed: Surprises will abound.