It can take anywhere from 30 to 90 days for a financial advisor at a brokerage firm to convert his or her practice over to an independent advisory firm.

That’s not a long time over the course of a career, but advisors should not underestimate how much preparation it takes to make the transition process as smooth as possible, according to experts who weighed in during a Sept. 21 Webcast event from by Schwab Advisor Services, a division of Charles Schwab [SCHW].

There are several critical steps involved in going independent, according to Schwab. Among them, advisors need to set goals and create a plan, work with third-party legal experts, determine their financial needs and reach out to existing registered investment advisors (RIAs)—either for advice or to join partner with their firms.

“Put a substantial amount of effort into transitioning,” advised Brian Hamburger, founder and chief executive of Englewood, N.J.-based MarketCounsel, a business and compliance consulting firm, a Webcast participant. Hamburger added that of all the transition efforts he has seen that have either failed or gone awry, a lack of preparation was to blame.

MarketCounsel starts by assessing a financial advisor’s current employment situation. Often, advisors working at wirehouses have signing bonuses, loans or other financial constraints that need to be resolved before they can leave the firm. Part of that involves helping the advisor with technical details such as developing the legal structure of the entity. “Depending on the structure, the firm may or may not be in the advisor’s name,” Hamburger said. “We don’t want them to find out the name they’ve selected is one they should not be using.”

It is also important for advisors to develop a business plan that reminds the advisor of where to lead the company over the next, say, 20 years. Advisors should also draft client agreements, to prepare the firm’s clients for the types of services they can expect. “We know clients are used to a certain sophistication, and we need to meet that,” Hamburger said. “Whether it’s the marketing material they touch, we need to make sure clients’ expectations are met or surpassed.”

Another important consideration is whether the advisor is moving from one of the 500 advisory firms that adhere to the Protocol for Broker Recruiting, which basically calls for them to avoid suing each other so long as the advisor follows certain rules. They can only take a limited about of client and business information with them when they leave, Hamburger said. Provided that advisors follow those rules, the transition should be free of major problems, even the concern an advisor might have of being hit with a temporary restraining order.

While Protocol can complicate matters—Schwab sets a minimum book of business of $10 million in assets under management for advisors affiliated with its firm, according to Tim Oden, managing director of business services at Schwab Advisor Services—Hamburger added that his firm has seen very high client transition ratios—in the 90% range—among advisors going independent.

The Webcast was the third in a series this year that focuses on the path to independence. The last one, “You’re an RIA, Now What?” is slated for December.


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