With CRM2 shaking up the whole wealth management arena and discussions around fees becoming all the more common, many advisors are looking for new ways to increase their value proposition. Advisors are under pressure to remain competitive and many are deciding to shake off the shackles of their institution or firm and take their practice independent.
It’s not that simple, though, and a successful transition to an independent platform is highly dependent on having sufficient resources and a detailed plan. “Independent advisors typically retain 100% of their revenue but at the same time assume all the expenses of their own office so a detailed plan is required to ensure that after paying rent, utilities, insurance, software, marketing, administrative salaries and other business expenses you end up with a profitable firm,” says Christopher Ambridge, President, Transcend. “Results vary primarily by expense management and client profile.”
A number of other issues beyond the fundamental economics need to be considered before an advisor goes independent and a solid plan is crucial. Advisors need to closely examine their existing client base in order to determine which clients are a good fit for the independent business model and, most importantly, the likelihood that they will move with them. “Advisors need to craft a very compelling value proposition to clearly explain why they are making the move and the benefits of continuing the relationship.” Ambridge says “They also need to understand the terms of any non-compete and confidentiality agreements with the dealer and assess the implications of changing the fee structure and how clients might react.”
Once an advisor has identified their potential asset base they can start to start to plan the types of services they want to provide and determine their ideal client profile, including age, geography, minimum account size and investment needs. “The advisor should also compile a list of their competitive differentiators as well as their value added capabilities and choose a new site for the new business which includes deciding whether the firm will share, lease or own the premises,” Ambridge says.
“It’s important to make a timeline of key steps and dates for getting started, for managing the firm on an ongoing basis and creating first year revenue and profit targets, including sources of revenues and projected cash flow.”