As the number of breakaways continues to rise, I regularly talk to teams who want to start their own independent advisory firms. In one recent meeting, I sat down with a group of advisors who were considering the move. As they were talking, I was checking all of the boxes — they had significant experience, they were geographically diverse, they had a loyal client base—but I quickly realized that none of them were on the same page.
One of them had a five-year timeline. Another had a 20-year timeline. So while one of them was thinking about a liquidity event, the other one was thinking about building a legacy.
I felt a little bit like a marriage counselor with a whole lot of spouses in front of me, but I recognized how valuable and important the conversation we were having was to the future success of this team. They knew where they wanted to be, but they hadn’t thought about how to get there and once they got there, they hadn’t thought about where they would be going.
This is just one recent example, but I come across this on a fairly regular basis. So I’ve begun talking about the importance of having a common vision. I like to run through a series of questions with them to help identify whether they’re aligned. I also like lists, so to that end, here are my Four Key Questions to Ask Yourself and Your Partners:
1. Why are you breaking away?
If it’s just about the money, it won’t work. The focus should be on building a business that will benefit you and your clients. If you want your clients to join you, they need to know that going independent isn’t about making you money, it’s about being able to better serve their needs.
2. Which business model will you choose?
Your team needs to think about how entrepreneurial you are – do you like the idea of looking for office space and negotiating a lease and managing employee benefits? Or would you prefer to have a firm handle that for you? There’s a spectrum of independence, so knowing where you want to be on that spectrum is important.
3. Who will lead the business?
Most advisors are solely focused on the actual break, but their focus should be equally on the six months before and the six months after. You don’t want to find out once you’re in the middle of transitioning clients and moving into your office space, that you and your partners don’t have the same views on which one of you will lead the firm. Yes, that’s a big problem — and a common one. Many teams break away because they want to serve their clients better — and that’s all they know and all they want to focus on. But what they don’t consider is that someone has to be the CEO. Someone has to make those tough decisions on reinvestment, resource allocation and fee structure.
4. What are your long-term goals?
There are three distinct phases of breaking away — transition, stabilize, accelerate. The transition and stabilize phases can be done as a team. In order to accelerate, however, you need a leader for the firm. That leader should be making the tough, strategic decisions today that can take you to the finish line, whether that’s five, 10, 15, 20 years from now.
Aligning your team on the responses to those questions can make all the difference between failure and success.
Bob Oros is executive vice president and head of the registered investment advisor (RIA) segment for Fidelity Clearing & Custody Solutions, a unit of Fidelity Institutional.
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