Going solo as a financial advisor has its perks. Whether it's a chance to break free of the strictures of a large firm or an opportunity to assert more control over product choices for clients, many advisors reach a point where they want to work independently.
Whatever your reasons for entertaining the idea of becoming an independent advisor, you have to weigh the costs.
Consider these factors before testing the field on your own:
> Lost clients
Sometimes, advisors overestimate the loyalty of their clients, and wrongly assume that most will join them at their new practice, says April-Lynn Levitt, coach with the Personal Coach in Calgary.
But many clients may end up sticking with your firm. Perhaps they find security in their advisor's association with a familiar brand. Or they might not want to renegotiate the terms of their relationship with you.
To protect against the financial risk of losing clients in the process, Levitt adds, you should have a "financial buffer."
That money you set aside should be separate from the startup costs of establishing your new business. In some cases, Levitt notes, if you sign on at an independently run firm, you might get a signing bonus that can help defray those costs.
Still, have some money reserved for covering your monthly living expenses.
> Lifestyle change
The first several months — or even years — will be a period of adjustment. One reason why many advisors want to take the independent route is that they want more flexibility in managing their work hours. But there are tradeoffs to consider, such as a pay cut and longer hours.
"[Independent advisors] have more control, but you might be busier," Levitt says. "Ultimately, you have more freedom [as an independent] because you're working for yourself."
Some advisors go solo because they crave a change of pace. Levitt knows of an advisor who quit his firm so he could spend more time travelling.
"This advisor works 12-hour days, but he takes about 12 to 13 weeks of holidays," she says. "Whereas before he couldn't structure his schedule like that."
> Your agreement with your firm
Even if clients want to move with you, Levitt says, your ability to keep them might be dependent on the arrangement you have with your firm. Some firms prohibit advisors from taking clients with them — even broaching the issue with clients could be forbidden.
If such an agreement is in place, find out what the limits are and assess whether it still makes sense to leave.
> Overhead costs
Think about the extra expenses that the firm covers, Levitt says. From your assistant's salary to the financial-planning software you use, you might not be aware of just how much all these costs add up.
"A lot of times advisors forget, or don't really sit down and look at the numbers," Levitt says.
> Referral network
For those with an entrepreneurial mindset, Levitt says, going solo can be the right move. On the other hand, if you have relied primarily on referrals from your firm to grow your client base, you might find it difficult to break out on your own.
Take your skill set into consideration, Levitt says. Be realistic about how comfortable you are at networking and landing new clients on your own — without the backing of a big firm to lend credibility.
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