As the wealth management industry continues to evolve, financial advisors have a broader range of choices than ever before in determining the structure and growth trajectory of their own practices. Competition for successful advisors with strong books of business among the wirehouses remains fierce, while opportunities for ownership in that world remain elusive. For advisors seeking to go independent, ownership is close at hand but it rarely includes a big payday on the front end, aka “The Check.”

In working with advisors who are seeking to identify the best path forward for themselves and their practices, I have witnessed the tug-of-war some experience as they move toward a decision point. When considering cases of this nature in retrospect, there is usually a consistent strategic gap that is identifiable. It is simply this, as skilled as advisors are in navigating the investing world for their clients, they often fail to think like an investor when building their own businesses.

A helpful exercise for an advisor wishing to assess his or her practice may be to look at it the way a venture capital or private equity investor would. What does this mean for the advisor?

Envision a Clear Exit Strategy from the Outset

From the moment a venture capital or private equity professional begins to examine a potential investment, they look not only at the fundamentals of the business, but at potential exit strategies as well.

Recognize Control Correlates to Your Ability to Maximize the Ultimate Value of Your Business

Just as the most successful private equity and venture capital investors typically seek a control position in the portfolio companies in which they invest, financial advisors need to be in control of the revenue and operating cash flow their practice generates, as well as the ability to manage a sale process that encompasses the broadest possible array of potential buyers.  In concrete terms, only true independence will provide this level of control for financial advisors. 

A successful advisory practice that is truly independent will always have a broader array of value maximization options than will a comparable in-house W2 advisor or team at a larger firm, who may only be able to consider a so-called “internal succession event” – Whether that involves selling their book to another advisor within the same firm or grooming a partner to take over the business.

Scalability and Expense Management are Paramount

Of course, independence is an absolutely necessary factor for a value maximizing exit strategy, but insufficient by itself.  As any private equity or venture capital investor can confirm, scalability and expense management are of paramount importance.  For independent advisors, this means thinking about how to outsource and delegate as many functions as possible that are not core to their ability to service or acquire client relationships. 

Typically, the highest cost and most time consuming functions for an independent advisory practice to attempt by itself are operational in nature; procuring and maintaining physical plant and equipment, regulatory compliance, and addressing both legal and market risk management.  In these areas, finding the right firm to partner with that can provide these functions can bring down costs while enhancing the scalability of a financial advisor vis-à-vis his or her client relationships.

Maximize the Flexibility and Pipeline of Potential Product and Service Offerings

The most successful advisory platforms are those that can choose from the broadest spectrum possible of best-of-breed service and product providers.  Indeed, private equity and venture capital investors are always seeking to expand the different vendor and partner company alternatives for the portfolio companies they acquire, and advisors should approach financial product and custodial support no differently.  Advisory groups that have elected to take a multi-custodial approach – working with numerous leading custodians and their product and service platforms at the same time – tend to operate at peak efficiency and support the widest possible array of client needs.

The much-discussed recent acquisition by First Republic of Luminous Capital bears much of this out:  Very clearly, the partners of Luminous Capital created a focused, well defined business model and managed the cost and scalability of the practice effectively. These characteristics lead to an efficient and growing practice that was attractive to a number of potential acquirers.  At the same time, thanks to the business’ truly independent status, Luminous was able to explore a full raft of exit options, including a host of outside bidders – and eventually realize a very attractive valuation – that would simply have been unavailable within the constraints of a W2 (employee) relationship.

The road to true independence can be challenging, but it can also be very fulfilling on both a personal and financial level. As advisors survey the various options that are open to them in today’s financial services landscape, they may want to bear this advice in mind: in order to truly maximize the value of your business in the future, think like a private equity or venture capital investor today.

Rob Bartenstein is Chief Executive Officer of Washington Wealth Management LLC (, an independent hybrid Registered Investment Advisor (RIA) producer group based in San Diego, CA, with over $1 billion in recruited assets under management.  WWM was established by former wirehouse veterans with the express purpose of enabling former wirehouse financial advisors to achieve freedom, independence and growth. 

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