During a financial advisor’s career, deciding whether to become independent is one of the most important–and potentially profitable–decisions you can make. Being independent has many benefits, including increased payout, ownership of your time, and flexibility to serve your clients better. However, the pathway to becoming an independent financial advisor is one you are paving and can include pitfalls and roadblocks. Having guidance throughout the journey can transform pitfalls into potential.
Pitfall #1: Fear of the Unknown
Transitioning to independence comes with more than just a higher payout. It also comes with being a small business owner, comprehending profit and loss statements, building operational efficiencies, and managing personnel. You are moving from employee to CEO, and it’s natural to question whether you’re prepared for the expanded role and responsibilities.
Some call it a leap of faith. Instead, consider it a bridge to something better. A bridge is solid and serves as a foundation of support to get you to your destination. The transition is a pivotal part of the journey. Having a comprehensive transition team to aid you in all aspects of setting up your business is game-changing. The difference will get you back to business sooner and well-equipped for success.
Having access to expertise, resources, and services designed for your business takes you to the next level. You need to find a team that will support you long after the recruiting pitch is over and the dust settles. You want it to be the last move you make. From launching your practice to growing your firm and eventually monetizing your business, the partner you choose makes the journey easier, more fulfilling, and more profitable.
Pitfall #2: Communicating The Value of Independence to Your Clients
When starting your independent journey, few things are more important than maximizing the number of clients and assets that move with you. On average, you can expect 70-90 percent of your assets to transition with you. Whether you are on the high or low end of that range can come down to two key factors:
• Effectively communicating the benefits to your clients. Clients should understand that your newfound freedom and flexibility is, in essence, for their benefit. Access to enhanced service capabilities and investment options further empowers you to deliver in your fiduciary role and guide their financial journey.
• Informing them is more than just a phone call or an in-person meeting. It creates an opportunity to begin a more proactive, consistent communication approach. Stay in touch with them throughout the process to highlight their importance and the level of service they can expect from you moving forward.
Most of your assets will transfer in the first 90 days of becoming independent, emphasizing the importance of getting this phase right.
Pitfall #3: Identifying your Brand and Target Markets
Your business will evolve over time. Throughout that journey, it will be essential to define your mission and values. These are foundational guides for your vision and goals, and they set the expectations for your service experience. It’s just as important to define the type of clients you will serve. Many advisors struggle to highlight the makeup of their client base across such factors as shared interests, occupations, and income ranges, among others. As you build your brand, including your logo, website, social media, and sales collateral, you must know who you are targeting in your communication.
If you are marketing to everyone, you are likely marketing to no one.
You can always provide services outside your target market as you see fit. However, it is more effective to stand out as a new business if your message is consistent and speaks to the audience you are trying to attract.
Pitfall #4: Adjusting to Independence and the Expenses Related to It
As a small business owner, you will have start-up costs, and you will become familiar with your balance sheet and profit and loss statements. You will also assume control over how and where you spend your time and money to serve your business. Start-up costs can include office set-up, hiring employees, and marketing the business.
Independent financial advisors must also decide which roles to fill with employees, which to outsource, and which to assume personally. There will also be ongoing responsibilities to manage, including administrative tasks, strategic planning, and bookkeeping, among other functions, all of which can take attention and time away from focusing on clients. Working with a firm that can guide you through those decisions can create a smoother path to independence and provides advisors with a resource for ongoing practice management.
As you go through this process, adopting an entrepreneurial mindset that’s resourceful, flexible, and curious is also important. The first two will help you maximize your resources and adjust to the variety that comes with running a business. As for curiosity, it will help you stay ahead of the game by understanding why you are making the decisions, identifying marketplace changes, and reacting to them proactively instead of reactively.
Pitfall #5: Using A Set It and Go Mentality
You start your new business with visions of grandeur and goals, such as a smoother administrative process, spending more time with your clients, and having more freedom in providing financial planning services to your clients. However, a quick reality will sink in as you discover the difficulty of doing all these things at the level you would like by yourself or with your limited staffing resources. As you grow, your time becomes limited, your staff takes on more work, and what used to work may not be as effective as it had been. Efficiencies and staffing models will change.
Advisors also need to expand or evolve their offerings to serve the needs of their clients or remain competitive in the marketplace. As a fundamental principle of business ownership, short-term and long-term goals will change over time. Independent financial advisors need to continuously evaluate the health of their business and adapt for continued success.
Having access to professionals with experience across every aspect of business management gives you an edge. Use that guidance to adjust your strategy, enhance the foundation of your business, or adopt services and resources designed for the independent financial advisor to accelerate your business.
Pitfall #6: Overlooking the Influence, You Can Have
Going independent has many benefits, including increased payouts, flexibility with your time, and designing the focus of your practice. However, one constant needs to be at the forefront of your business and priorities—serving your clients’ needs and the community around you. As a financial planner, you canpositively impact your client’s lives and their financial legacies. As a business owner, your reputation and impact can expand far beyond the four walls you work in.
If you’re thinking about becoming an independent financial advisor or need support on your independence journey, contact us at independence@goodlifeco.com.
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