Financial advisors considering leaving a large firm to go independent have significant benefits. Going independent allows advisors to run their practices on their own terms, enjoying the perks of full control of their brand, finances, and tax strategies. Let’s look at the top three advantages of choosing independence.
1. Freedom to Shape Your Practice
One of the greatest appeals of going independent is the freedom to build a business that aligns with your vision and values. Unlike large corporate environments, where the parent company often dictates branding, operations, and technology choices, independence allows for complete autonomy. Key freedoms include:
- Brand and Identity: Independent advisors can create a unique brand that resonates with their niche audience, building trust through a distinct identity.
- Location Flexibility: Advisors can choose office locations and even design custom office spaces that reflect their style and meet client needs. Alternatively, they can fully embrace remote work and establish virtual practices.
- Technology and Tools: Going independent enables advisors to select the best tools and technology for their specific client base. With AI entering the wealth management industry at lightning speed, the ability to be agile by plugging into the latest tech stack can enable advisors to scale their practice better, deepen client relationships, and enhance overall client satisfaction.
- Marketing Control: Without corporate restrictions, independent advisors can market their services creatively and effectively, using strategies like social media, podcasts, webinars, and content marketing to reach their target audience.
- Hiring and Firing: As an independent advisor, you can hire employees who fit the culture you want to build and make adjustments if someone isn’t the right fit.
- Legacy Building: If you have children, independence also opens doors to creating a legacy. Advisors can set up their business for family members, allowing children or other loved ones to carry on the practice, creating a valuable generational asset.
2. Higher Earnings Potential
Financial independence brings about the opportunity for greater earnings and control over revenue streams, offering benefits such as:
- Increased Revenue Share: Independent advisors typically keep a much higher percentage of their revenue, often as high as 70% or more of their net earnings, versus the significant “haircuts” like discount sharing that can come in a large broker-dealer environment.
- Book Ownership: Instead of being subject to restrictions on client relationships or non-compete clauses, independent advisors fully own their client book. This is a significant asset that can be sold or passed down. Books are valued today anywhere between 2-3x T12.
- Freedom to Hire Additional Advisors: As their practice grows, independent advisors have the flexibility to hire junior advisors, expanding their book while building a team that can help manage client relationships.
- Transition Compensation: Many firms offer significant financial assistance, including upfront payments and transition support, to ease the switch to independence. The average is 30-50% of T12, but some firms pay 100% upfront with additional backend bonuses. This can provide further incentives and boost to advisors moving away from traditional firms.
3. Tax Benefits from Self-Employment
Transitioning to a 1099 status comes with substantial tax benefits that salaried advisors at larger firms may not enjoy. As independent contractors, advisors can take advantage of the following:
- Deductions on Business Expenses: 1099 advisors can write off many business expenses, including office space, technology, travel, and client entertainment, which can lower taxable income.
- Retirement Contributions: Self-employed advisors can set up individual 401(k) plans or SEP IRAs, which allow them to contribute both as employer and employee, maximizing retirement savings.
- Health Insurance Deductions: Health insurance premiums, often a significant expense, can be deducted for self-employed individuals, easing the burden of securing private coverage.
- Home Office Deductions: The IRS allows for a home office deduction for those working from home, which can cover a portion of rent, utilities, and other home-related expenses used for business.
Final Thoughts
Going independent is a big decision involving new responsibilities, but the freedoms, financial gains, and tax advantages can make it well worth the transition.
Call me today if you'd like to explore independence for your practice.
