Leaving a financial advisory firm to strike out on one’s own may sound alluring, no bosses micromanaging, no useless meetings eating up time and no corporate constraints on the advice given to clients.
But going the independent route has its own costs. For instance, there is no support staff.
“All the things you used to assign to others, you are doing,” says Mick Heyman, principal of Heyman Investment Counseling in San Diego, who previously worked at Invesco.
That includes regulatory filings, airline reservations, trading, planning and billing.
“I didn’t even know what a regulatory form was before,” Heyman says.
Recently, he visited a well-heeled prospective client who wanted to see an example of a portfolio that Heyman might use for him.
Before the visit, Heyman said, “I’ll show him the holdings of a $10 million client. That means after printing the statement, I’ll have to spend about an hour whiting out all the personal information.”
In the old days, an assistant would have done that for him.
“You have to get used to thinking like an independent and not having people checking your work,” Heyman says.
Tom Fredrickson, a CFP and the founder of Fredrickson Financial Planning in Brooklyn, who left Altfest Personal Wealth Management in 2012, decided he still needed help and hired a part-time assistant.
He also didn’t go fully independent as he is part of the Garrett Planning Network, which provides him with compliance support and takes care of his billing.
Still, Fredrickson does all his own marketing. As a former journalist, he has writing experience.
“But it’s still tough to put out the newsletters, tweets and blog,” Fredrickson says. “As a solo act, it all falls on your plate unless you leverage marketing from other companies.”
Meanwhile, finding new clients while properly serving existing ones is “a juggling act,” Fredrickson says.
“At a larger firm, I was a member of a team that could divide up those responsibilities,” he says.
Obviously, advisers need to make sure that they have a big enough client base to make a living when they venture out on their own. Some firms have non-compete clauses that prevent advisers from taking any of clients with them for the first six to 12 months after leaving.
And advisers shouldn’t make any rash assumptions about which clients will move with them, in any case.
“There’s inertia and loyalty,” Heyman says.
Sometimes that inertia and loyalty is directed toward the adviser, and sometimes it is directed toward the firm.
“You may think your client is the best thing in the world and count his portfolio as automatic when you leave,” Heyman says. “I guarantee you’ll be disappointed in some cases.”
So before advisers decide to go it alone, they should keep in mind the sacrifices that they will make.
This story is part of a 30-30 series on transitions.