going independent 2012 independence: consider your … · going independent 2012 the research guide...

G O I N G I N D E P E N D E N T 2012G O I N G I N D E P E N D E N T 2012

T h e R e s e a r c h G u i d e t o G o i n g I n d e p e n d e n t S e p T e m b e r 2 0 1 2

G O I N G I N D E P E N D E N T 2012

Independence: Consider Your Motivation

By ed mccarthy, cfp

Before joining the RIA ranks, make a candid assessment of your reasons for doing so.

T he shift among advisors to independent registered in-vestment advisor (RIA) status

continues at a strong pace. At Schwab Advisor Services, the RIA-industry’s largest custodian, 166 advisor-teams representing $12 billion in assets af-filiated with the company in 2011. Ac-cording to Tim Oden, senior managing director of business development for

Schwab Advisor Services in San Fran-cisco, Calif., deals with advisors com-ing from wirehouses have accelerated in 2012 and are driving a greater percent-age of the company’s growth.

If you’re considering joining the RIA ranks, it’s natural to focus on the numer-ous steps involved: regulatory require-ments, custody and account transfers, back office setup and so on. But before

you declare independence, consider your motivations for the change. Re-viewing your reasons before you start the transition can help clarify your goals and give you an idea of whether you’ll be served better under a corporate-RIA or by setting up your own shop.

Freedom, Flexibility, ControlBroker-dealers and wirehouses have


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“We are traditionalists and don’t want to be told to buy the latest thing.”

— Deborah A. Stauring, Winthrop Financial

their own business models, profit targets and regulatory procedures. If an advisor wants to adopt practices and processes that differ from the affiliated company’s model, the partnership can get strained. “Advisors want to be able to run their own businesses in the way in which they want to run them,” says Derek Bruton, managing director and national sales manager, LPL Financial in San Diego. “They want to service their clients in the way they’d like to.”

Mark Tibergien, chief executive of-ficer and managing director, Pershing Advisor Solutions in Jersey City, N.J., says increased operational freedom is a key motivator for going independent. “If you’re in a captive environment you may be stuck with more proprietary so-lutions or you may not be able to do certain things because you’re governed by their own sales practices,” says Ti-bergien. “So that freedom of choice is a big part of it. So, too, is the freedom of who they choose to work with, both of which could be restricted in certain captive brokerage environments.”

Deborah A. Stauring, CFP, ChFC, AIF with Winthrop Financial in Buf-falo, N.Y., went independent because she wanted the ability to make quick decisions and to choose the services she and her colleagues provided. “We can select securities and tools that we want without committees and delayed decisions, or no decisions at all, from a large company,” she says. “We are tra-ditionalists and don’t want to be told to buy the latest thing.”

Some advisors’ desired business model simply doesn’t fit within a larger firm. Amy Jo Lauber, CFP with Lau-ber Financial Planning in West Sen-eca, N.Y., decided to go independent because she wanted to focus on finan-cial planning that included aspects of behavioral finance. There was a twist, though: She wasn’t interested in man-aging clients’ investment assets, a key

source of profits for many firms.“I got tired of meeting with prospects

who didn’t have any assets for us to manage because everything was tied up in a 401(k) and we couldn’t take them on as a client,” she says. “I said, this is ridiculous. There are tons of people who are starving for good financial informa-tion and guidance and there are so few models that can accommodate that. So that’s where I went.”

Nate Stibbs, senior vice president with Triad Advisors in Atlanta cites increased control as the most common reason he’s encountered among advisors affiliating with his company. Indepen-dence allows advisors to build their ideal platform, he says, which in turn provides increased control over manag-ing the business, client portfolios and technology. “It just gives you a different dynamic to your business that you don’t otherwise have if you’re at a wirehouse or at a large independent,” he says.

An advisor’s marketing efforts can also benefit from RIA status. Rett Dean, CFP, EA and his partner went indepen-dent Riverchase Financial Planning in Lewisville, Texas. One motivation Dean cites was the desire to have more con-trol over the firm’s marketing efforts. He notes, for example, that broker-dealers usually impose constraints on their reps’ interactions with the media. If a rep wishes to speak with a jour-

nalist, the broker-dealer’s compliance department will want to see the ques-tions in advance and approve the rep’s responses.

As an independent RIA, Dean can respond more freely to the media, al-though he recognizes that freedom transfers compliance oversight back to his firm. “Others would argue that you’re taking in that liability yourself and I don’t deny that,” he says. “At the same time, though, I believe and my partner believes that we’re not going to say anything that would potentially cre-ate a conflict or put us at risk of having some litigious situation arise. We’re not going to go out on a limb on something we don’t feel confident talking about. We’re not going to go into a subject that we don’t feel we can talk at some level professionally about.”

Economic FactorsEconomics can be a major motivator, according to Van Law. From an operat-ing perspective, he notes, affiliated and captive advisors can find themselves paying for corporate services that they don’t need and that don’t benefit their clients. Part of those paid-for servic-es includes promoting the corporate brand, says Tibergien, but that affilia-tion can have little value for many suc-cessful advisors. “Many practitioners who get to a level of maturity find that they don’t need to have a big brand name anymore,” he says. “They want to create their own brand. And, so, the cost of whatever they’re giving up in override is not worth the retention of the brand because they’ve created their own brand.”

From a longer-term perspective, independence allows advisors to build value in their firms that is more easily monetized in a future ownership trans-fer. Non-independent advisors who retire and transition their business, particularly at wirehouses, are shifting




(#74103) Reprinted with permission from Research Magazine. © 2012 by The National Underwriter Company doing business as Summit Business Media.For more information about reprints from Research Magazine, contact PARS International Corp. at 212-221-9595.

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income, says Van Law. The typical tran-sition arrangement is that they receive a percentage of previous income over time on a downward sliding scale. This is ordinary income versus an outright business sale that can generate a lump sum or potentially qualify for prefer-ential capital gains treatment. Conse-quently, Van Law notes, such sales are not nearly as attractive economically as building an independent business and selling it.

Less Regulation? Maybe In Dean’s experience with the RIA structure, he and his partner have fewer regulatory obstacles in dealing with news media. Stauring also cited the desire for a reduced regulatory burden in her firm. She previously had been dual-registered and found that arrangement’s compliance regime was time-consuming and burdensome. “The independent RIA route was important to us in order to concentrate more on the client base than the regulators,” she says. “We were taking up so much time developing processes and satisfy-ing compliance from two regulators that it didn’t make sense anymore. Also, the cost in staffing needs and technology and dual registration was unnecessary and wasteful.”

Not all advisors switching to RIA-status should expect a lighter regula-tory burden, though, and advisors who want or need assistance with compli-ance might be better off affiliating with a corporate RIA or outsourcing their compliance management. Tibergien believes it’s a “great myth” to think that things are easier from a regulation perspective as an RIA versus operating within a broker-dealer.

“People who go in with the no-tion of regulatory arbitrage are of-

ten surprised by the degree to which compliance takes on a bigger role in their lives,” he maintains. “One way in which it takes on a bigger role is that now that they’re independent they are absolutely on the hook for their own compliance and oversight versus having that performed by the broker-dealer. So, that is one motivation that I think is not valid.”

Compliance poses an additional burden for smaller independents be-cause staff resources in those firms usually are stretched thin. Given the changes in the industry’s regulatory changes, Stibbs believes firms face a “massive” increase in compliance and regulatory costs across the board and that can be a challenge. “I think as an advisor you’ve got to have the depth of scale, you’ve got to have the depth of infrastructure internally to be able to manage the compliance within a separate RIA model,” he says. “For a lot of solo practitioners I think it’s a challenge, frankly. For larger firms, for teams, ensembles, I think it can still be a challenge but you’ve got to have the depth of staff, you’ve got to have the depth of internal resources and compliance to be able to manage that on-site.”

Is it Worth It?Despite the challenges, the advisors interviewed for this article are unani-mously satisfied with their decisions to go independent, even when their incomes decline for the short term. Lauber’s summation captures the consensus: “At first it was very dif-ficult (especially registering as an RIA) and slow-going, but now that I’m rounding the two-year mark, I’m very, very busy and am easily meet-ing my stated goals.” L

“Many practitioners who

get to a level of maturity find that they don’t need to have a big brand name

anymore.”

— Mark Tibergien, Pershing


( 0 9 1 2 - 5 7 5 7 ) at L 6 9 7 5 0


M oving from the broker-age world to indepen-dent status is a major

decision that shouldn’t be rushed. David Kohlhaas and his colleagues at Ascential Wealth Advisors in Duluth, Minn., spent about three years evaluating their options for going independent before joining Raymond James Financial Services last October.

Kohlhaas, Brad Christiansen, Kristin Rognerud and their support staff were successful at UBS, where they managed over $200 million in client assets. The team’s decision to leave UBS wasn’t based on any one specific event, says Kohlhaas. Instead, they believed that some of the company’s decisions were beginning to influence their cli-ent relationships. “When we felt compelled to address corporate initiatives, whether it was prod-ucts or processes or some kind of change in the relationship that’s corporate-driven, it felt to us like it impeded our ability to have a pure relationship with the client that was based on their needs, what (the) business should be all about,” he says.

Kohlhaas recalls that the wire-house advisors were pushed to be more engaged with in-house prod-ucts and processes. His concerns were not necessarily about product quality, he points out, because the

products might be good. He cites an example: switching clients to paperless statements. “I’m not op-posed to being green and saving paper,” says Kohlhaas. “But I don’t think that all of our clients should be approached to go paperless because I think it’s an invitation to not pay attention. Those initiatives that were driven by the corporate office felt more about the corpora-tion and less about the client and their needs.”

When they decided to leave UBS, Kohlhaas, Christiansen and Rognerud compiled an initial list of 13 firms for possible affiliation. They evaluated each firm’s systems, processes and tools and narrowed the list to three finalists. They then visited the finalists’ corporate of-fices before deciding.

Ultimately, says Kohlhaas, it was their perceptions of Ray-mond James Financial Services’ culture and “regional-firm feel” that sealed the deal. “Raymond James clearly views us as a cli-ent of theirs and they are inter-ested in doing a good job for their clients as any service pro-vider would be.” That attitude, he says, “existed at UBS but it wasn’t pervasive like it is here at Raymond James.”

Another decision the Ascential Wealth Advisors team faced was whether they should create their

own registered investment advi-sor (RIA) or affiliate with the Ray-mond James’ corporate-RIA. They chose the corporate-RIA based on clients’ needs, says Kohlhaas. Sev-eral of their clients own annuities and 529 college savings plans, and the Ascential team didn’t want to require clients to hold those assets at a separate firm.

“In order for us to service those clients, we didn’t want to ask them to do a portion of their financial business somewhere else,” says Kohlhaas. “We want to provide full advisory services for our cli-ents. We decided that having a partnership with an independent firm and working under their RIA with a brokerage connection met all of our needs.”

The transition from UBS to Ray-mond James was successful: 95% percent of the team’s core busi-ness followed them and the firm has since grown to $230 million, of which roughly 80% is in fee-based assets. Kohlhaas says the transition was “absolutely the best decision we’ve made. We absolutely have no reservations that we made the right decision for our practice, first and foremost for our clients; sec-ondly, for our practice. And, so, we’re very happy with the move. The clear regret is we wish we had done it sooner.”

—E.M.

(#74103) Reprinted with permission from Research Magazine. © 2012 by The National Underwriter Company doing business as Summit Business Media.For more information about reprints from Research Magazine, contact PARS International Corp. at 212-221-9595.


One Group’s Story

The views in this article are those of the author and may not be the views of Schwab Advisor ServicesTM or its employees. Schwab Advisor Services makes no representations about the accuracy of the information in this article or its appropriateness for any given situation. Schwab Advisor Services serves independent investment advisors and includes the custody, trading and support services of Schwab. Independent investment advisors are not owned by, affiliated with or supervised by Schwab.

Reprinted with permission The above firms are not affiliated with or employed by Schwab.


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