- On June 26, 2017
While it would not be hard to compile a list of dozens of takeaways about breakaways, this is our Top 5 list of the most compelling reasons for breaking away. Each takeaway will resonate at a different level for different brokers according to individual drivers, motivators, preferences, and goals. If you’re a wirehouse broker considering independence, we hope our Top 5 Compelling Takeaways for Breaking Away List will compel you to call Advisorbox!
- You’re essentially already a Hybrid RIA at a wirehouse
Brokers who have the vast majority of their client assets in fee based managed money are essentially Hybrid RIAs operating in a wirehouse, and drastically overpaying for the privilege.If your business development revolves around a recurring revenue model, you rarely use the broker dealer side and then mostly utilize it for previous trail business, then why give up 60% or more of your revenue to be at a wirehouse? As an actual Hybrid-RIA, you pick which aspects of technology and platform you want to use and don’t have to give up more than half your revenue for the rest you don’t use. Breakaway Brokers can net about 65% of their revenues without the hassles or wirehouse employment. If you’re already acting like a fiduciary then why not get paid like it? Financial Advisors should financially advise themselves when comparing their expensive wirehouse model to the superior economics of independence.
- Options within options
Breakaway brokers have never had as many independent options and resources available. The open architecture platforms, technology and systems available now on the independent side have allowed Breakaway Brokers to flourish. There are numerous models and structures, and even more variations created by entrepreneurial advisors and firms available within those models. There is the independent broker dealer model, but within the IBD there are also options to tuck-in to existing practices, merge your practice with an existing IBD practice, or join as a merger succession where you join the firm you’re selling your practice to. The derivatives of an RIA model is even more complex. You can own your fee only RIA registered with the state or SEC and utilize a custodian, you can own a hybrid RIA, you can utilize one or have multiple custodians, you can join a corporate RIA, you can become an RIA aggregator, join with other breakaways to form super, or ensemble RIAs, and you can join or merge with any of the above. And that’s not the complete list. The important takeaway for the breakaway is that there is an option out there that will be the ideal fit for you.
- You don’t have to be entrepreneurial to be independent
You can be more enterprising than you are entrepreneurial. Many brokers would rather keep their 40% wirehouse payout than spend 40% of their future time on business owner responsibilities of running a pure independence business model. Fortunately, for this type of Breakaway Broker, there are just as many opportunities, if not more, for brokers who want the autonomy and favorable economics of independence but who doesn’t want to deal with most of the business owner management aspects. The industry has evolved to the point that a Breakaway Broker can go independent and technically “own” their clients, and then outsource or plug into various soft landing options that provide office, receptionist, technology, and a support staff that is already familiar with the workarounds and nuances of the independent broker dealer or Hybrid RIA you just affiliated with. You net about the same as if you were spending all the time and effort to do it yourself, and you can always take on more responsibilities as you become more comfortable in the independent setting.
- You’re ready to build something special
Brokers interested in creating their business legacy and who would like to take their business to a different level or the next level, can thrive in the independent platform. If you’re looking to create a lifestyle practice and not work as much, develop a better culture and have a more fun and autonomous work environment, or want to build your own empire, the flexibility and options are available. We now have as many breakaway brokers partnering with other breakaway brokers from the same and different wirehouses going independent together than we do individual breakaways. Other brokers want to build their empire on another’s platform through an OSJ model or franchise model, and others want to start from scratch. With a third of the industry hitting retirement age within the decade, breakaways can position themselves to rapidly grow through acquisitions and adding advisors to their own empire in the independent space. When you’re done building something special you can sell the equity in your business for substantially more than a sunset deal. Life is short and time flies; consider opening your potential of what could be, and what you can accomplish with the right platform, support and strategy.
- Selling is twice as lucrative than sunsetting
About 1/3 of wirehouse brokers will be hitting retirement age within the decade. While sunsetting is the path of least resistance, it will cost you big time financially. Why sunset your practice for 150% to 180% over 3 to 5 years taxed as regular income when you can breakaway and sell your practice on the independent side for 260% to 300%, get almost all of your money at closing, and have about 85% of the sale taxed as capital gains? The money decision is a no-brainer, it’s the transition process that concerns brokers who haven’t done their due diligence yet. Some brokers feel it is too much of a hassle transitioning clients to a new firm, some went through a transition before in their career and still have a bad taste in their mouth from it. The truth of the present however, is that the industry has advanced significantly in the ease and support of transitioning clients. The best-in-class options assign you a Transition Manager to organize all the aspects of the move, and on site transition support so all you have to do is talk to your clients and all the paperwork and accounts setup is done for you. A retiring broker can breakaway and sell now or breakaway to the firm they will sell to later. Just like the other aspects of independence, there are numerous options and creative flexibility in how you structure your retirement. The most important thing is that you are in control of how and when you ride off in the sunset and how many saddlebags of cash you’ll be carrying.
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