As wirehouses have taken a beating over the last year, more clients are turning to independent financial advisers. As a result, many independent fee-based financial houses are seeing an influx of business from customers looking for objectivity. Case in point, Edelman Financial Services, a financial planning and investment firm based in Fairfax, Va., has seen its business boom this year, recently opening six offices in the New York metropolitan area.
"Wirehouses are dinosaurs, they're bleeding assets and reps," says Ric Edelman, chairman and chief executive of Edelman Financial. This translates into a great time for advisers to make the switch to independent financial advisers. Here are some tips on what it takes to successfully transition into the independent arena.
Analyze the Costs and Time Commitments Involved
Going independent means you'll be responsible for running your operations smoothly. You'll now have to buy phones, hook up the Internet, find office space and take care of the other day-to-day commitments of running business operations, says Pete Deragon, director of Stanton Chase International's San Francisco office and financial-services practice leader for North America.
"Some people get all tied up in the administration and then aren't selling," says Deragon. "There's no guarantee of succeeding." He says it's important to account for all of your startup and continual operating costs to ensure that you'll be profitable once all expenses are paid.
Edelman says one of the most important steps an independent adviser can take is to hire an office manager. He says typically advisers have a "do everything themselves" mentality but to succeed they'll have to learn to delegate.
Make Sure Your Certifications are Up to Date
If you're making the transition from a wirehouse to independent, you'll already have obtained the Series 7 and Series 63 as well as basic licenses you'll need to make transactions. However, starting your own shop will require a Series 24 which will allow you to be principal, says Mark Lookabill, chief strategist with Carson Wealth Management Group, an independent financial firm based in Omaha.
Think of Yourself as an Entrepreneur
"You need good business acumen, being an adviser has nothing to do with running an advisery practice," says Edelman, who was named Barrons' No. 1 independent financial adviser in 2007. Edelman says advisers almost always overlook areas such as human-resources, purchasing, payroll, and corporate finance, which are crucial to a practice. He suggests networking with other small business owners and reading up on the topic. "There's a lot of commonality among small business owners regardless of their product or services," he says.
Research Broker Dealers
As an independent adviser, you'll have to align yourself with a broker dealer in order to clear trades. It's all about finding the right fit for what you're trying to do, so some due diligence is in order.
Lookabill says advisers should take stock of the broker dealer's research team, technology budget, compliance team and payout when making this decision.
Bill Morrissey, executive vice president of business development for LPL Financial, the nation's largest independent broker dealer, says this is one of the most critical decisions advisers can make. He suggests considering the broker dealer's investment in technology, the extent of their training and education programs and the scale of their resources, among other things. "You want to have the ability to outsource things to the broker dealer to free you up to spend more time working with clients," he says.
Leverage Existing Relationships
Tread carefully on this one. While it's considered unethical to poach your existing clients while you are still employed, once you set up shop it's smart to reach out to clients you have established trusting relationships with.
Lookabill recommends reaching out to clients, telling them of your career change and how it may benefit their interests going forward. Then request an in-person meeting and make your pitch. "Right now the trust factor is huge and clients are looking for people they can trust," he says.
Morrissey says often times clients voluntarily follow their adviser once he or she leaves the bank or wirehouse they were aligned with. "In many cases advisers and clients retain good relationships but the client's relationship with the firm has changed," he says.
Create a Marketing Plan
"I would not be able to succeed if I just sat here and waited for clients to pick up the phone or happen by our door," says Lookabill.
Instead, he says it's important to create awareness about your services to generate business. Carson Wealth Management Group has done so by becoming involved in its community through volunteer work and sponsorships. Recently, the company sponsored a 10k run that benefited the American Lung Association. Other advisers may want to consider hiring a public relations team to pitch articles to the media and gain visibility, he says.
Offering free seminars to school parent teacher organizations about college planning helped Edelman get his start. The seminars allowed him to create visibility for his firm in the community as well as establish himself as an expert on the topic.
Invest in a Web Site
Create a Web site with your services and make sure it's professional. Customers will be suspicious if you don't have a Web site but they may be even more turned off if you have one that isn't polished.
"If you're not going to grow your organization there's probably no point in doing this other than ego gratification," says Edelman, who now has over 200 employees. He says growing your business is key as it creates credibility and profitability.
Deragon adds that bringing other advisers under your umbrella can help grow sales and make you eligible for incentive payments.
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