A Primer for Breakaways (Part 1) - Trends & Rationale

Originally published February 15th 2013 by Pinnacle Advisor Solutions. From the Corner Office is the leading blog for emerging independent financial advisors (AUM of $20-400MM) designed to address the common strategic and managerial issues associated with building a profitable practice. The blog is authored by the team at Pinnacle Advisory Group, an independent financial advisory firm serving more than 800 families with assets of over $1.1 billion and a four-time winner of the coveted Moss Adams Best Managed Practice award. The blog is typically published on the 15th and last day of the month.

Nary has a day gone by without an article about the burgeoning breakaway trend.  And the data supports it whether you look at the shift in assets under management or the headcount of advisors themselves.  With that said, I have personally been surprised by the number of wirehouse advisors that concede they know very little about the world of independence.  In fact, a survey of breakaway brokers conducted by Fidelity last year concluded that the #1 obstacle to independence was a lack of understanding about how to do it.

But I (we) shouldn’t be surprised. The wirehouse is certainly not going to encourage that education.  Indeed, they support the all too common myth that independence is an insurmountable challenge for all but the largest firms due to the considerable regulatory, compliance and operational issues that must be handled on a day-to-day basis.  And who wants to deal with that?  Wirehouse advisors, like the rest of us, got into this business to provide wealth management solutions to clients, not manage a complex back office.

But here is the rub: advisors are leaving wirehouses in droves (voluntarily and involuntarily), and most of them are successfully continuing their careers somewhere else.  TD Ameritrade helped more than 400 advisors transition in 2012.  About 50% of them tucked-in to another firm and about 50% established an independent firm.  Advisors with large and small books alike found success in a post-wirehouse world.  Indeed, that same Fidelity survey found that 94% of breakaway advisors were happy with their decision to become independent and 90% wish they had made the move sooner!

Why is that?  We all know the reasons.  (1)  Advisors want to take better care of their clients.  They want to eliminate conflicts of interest and enjoy the freedom of offering products and services that clients need instead of those the wirehouse can make money on.  (2) Many prefer independence.  They are glad to eliminate the time-consuming and often frustrating bureaucracy of a large wirehouse and the office politics that come with it.  They want to be their own boss and do their own thing.  (3) And of course, who wouldn’t be interested in making more money for the same amount of work, especially knowing that the equity value of all that work now accrues to you.

Of perhaps greater importance is how much easier it is to make the break.  Technology has exploded inside the financial advisory business … enabling greater productivity at reduced cost.  On its heals has come a wave of outsourcing solutions that readily replace the wirehouse infrastructure.  In fact, while the wirehouses are turning up their noses and culling smaller books (sub-$75MM according to the press) from their ranks because they are deemed unprofitable, those same advisors are finding that they can capture the same infrastructure and an unlimited capacity to grow using outsourcing solutions and run a profitable firm (oftentimes more lucrative than their wirehouse gig).

To put the transition in context, with the help of several outsourcing partners, we recently established a breakaway advisor in about four months: two months to establish the firm and another two months to schedule and complete client conversations and transition the assets.  We will cover the process in more detail in Part 2 of this conversation.

So the trick is to help advisors understand what is on the other side, educate them about how to get there and introduce them to some people that can help them along.  They need to know that breaking away is the beginning of the better part of their career!

To this end, Pinnacle Advisor Solutions will be hosting the 2nd Annual Breakaway Advisor Symposium in March and April.  This free webinar series is designed to provide you with the information you need to make a decision about independence and introduce you to the leading players helping advisors achieve independence.  One of these partners will make a presentation on their respective field of expertise each Wednesday afternoon in March and April.  The webinar format should allow you to participate in private and on your own schedule – presentations will be posted at www.BreakAwayAdvisors.com.  You are also welcome to follow a continuing conversation on the breakaway market on Twitter: @BreakAwayBroker.  If you were unable to participate last year, we encourage you to join us this year.

That’s all for today.  I plan to pick up the conversation with a discussion of the process in Part 2 and a discussion of the economics in Part 3.  Stay tuned!  And as always, feel free to contact me anytime.  We are always happy to help or point you in the right direction if we cannot help.

Pinnacle Advisor Solutions is a leading provider of comprehensive business solutions for emerging advisors ($20 million to $400+ million AUM) committed to growing their firms profitably and developing the practice they always wanted. Learn more at www.pinnacleadvisorsolutions.com

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