{ royalalliance.com } The Case for Independence. For Financial Advisor Use Only

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1 { royalalliance.com The Case for Independence For Financial Advisor Use Only

2 Should I Go Independent? It s a question you may be asking yourself, and one that more and more advisors are asking today. Changes in ownership and culture at many brokerage houses in recent years have certainly made the potential opportunities an independent practice can offer more attractive. And it s more than just higher payouts. The wider range of products and marketing resources and the technology and support available at independent firms today is unparalleled. If you re concerned about taking more control over your practice, it s never been easier to make the move to independence. But is it the right choice for you? It s a question only you can answer, and a decision you can reach only after exploring where you want to go in your career. Do you prefer to remain an employee advisor? Or would you like to build your own business, creating a saleable asset or a lasting legacy for your heirs? You ll also need to find the right partner. One who can help you take your business to the next level while ensuring you stay competitive and successful well into the future. This guide is designed to help you begin this process of self-discovery and offers advice and tools for making the decision that s right for you.

3 The Face of Independence What Does an Independent Financial Advisor Look Like? Independence isn t for everyone. And independent broker-dealers aren t looking for just anyone. There are certain common traits found in nearly every successful independent financial advisor. Take a look at the list below. Does this sound like you? If you share some or all of these traits, going independent may be right for you. You seek control over your career and professional future. You are fiercely independent and self-motivated. You want more autonomy, less dictation from a boss. You have at least five years of experience in the business and produce at least $150,000 in annual commissions. You prefer to decide what products and services you ll offer and the type of clients you want to target. Your clients value the relationship they have with you over the one they have with your firm. You want unlimited potential for earning more income, as well as greater control over your expenses. You want to build equity in a business. You want to set your own goals and objectives for running your business. You want to choose where you work, who you work with and how large or small your office will be. 1

4 Choosing Your Structure There is more than one way to be independent, of course, and also a choice of just how much independence you want. Whether you choose to join an existing branch office, hang out a shingle of your own or establish a partnership with other independent advisors, the structure of your business will in many ways dictate the types of products and services you will be able to offer, the kind of clients you wish to attract and how your practice will grow over the longer-term. From a fundamental perspective, independent advisors are in a more competitive position by virtue of their independence. You are free from corporate agendas and can operate your practice in the way that is best for your clients. Steve Cassaday, President, Cassaday & Company, Inc. Independent Financial Advisor Affiliate with a national or regional broker-dealer to leverage their scale, support, research, trading, compliance and other resources, and set up your own practice. Open an office, choose a firm name, and start being your own boss. Branch Advisor Some independent broker-dealers offer opportunities for you to join forces with other independent financial advisors in an existing branch office. In this scenario, you are an independent financial advisor but the office infrastructure is already in place.

5 Independence: Your Competitive Edge Making the move to independence brings successful advisors many benefits. As an independent advisor, you can: Increase your income potential: Wirehouse or insurance firm advisors often see their income more than double after making the move to independence. Greater control over your expenses raises the potential for increasing your income and overall profitability. My business is much more appreciated and respected in the independent community than it ever was in the captive wirehouse market. Paul Largo, President, Freedom Capital Management Rely on your own reputation: When you re an independent advisor, you are the brand. You control your reputation and the culture you want to create for your clients and staff. Deliver greater value: You know what s best for your clients and have the freedom to choose the types of products and services you want to offer. You can build relationships with clients based on their needs and deliver outstanding service with your hand-picked staff. It s the kind of relationship that produces a loyal client base and a greater potential for referrals. Shape your own future: As an independent financial advisor, you have a voice. The senior management and staff at independent firms consider you their client and work hard to earn your business. They are interested in what you have to say and typically offer opportunities to serve on advisory boards and provide feedback in other ways. Independent advisors often help shape the development of future product, service and technology offerings at their firms. Build a lasting legacy: What happens to your client accounts if you become disabled or pass away? If you re at a brokerage firm, the branch manager takes control and distributes them to other advisors in the branch. As an independent advisor, when you re ready to retire, you can choose to sell your business or pass it on to a member of your family. Either way, you choose a succession plan that s right for you and your clients. Create a more balanced, enjoyable lifestyle: Choosing independence allows you to create a better balance between your personal and work life. You can create a culture and work environment suited to your unique needs and choose your business structure and the types of clients you want to work with. If you want to focus on a niche or specialty, you can. You pick where you want to work, your partners (if you want any) and staff, and set your own hours. 3

6 What s Holding You Back? While there are many rewards for going independent, there are some potential challenges that may keep you from taking the next step. Let s look at the more common reasons advisors hesitate to go independent and some ways these issues might be overcome. New advisors transitioning to the independent channel need superior support. Learning new technologies, transferring accounts and getting up to speed on services, products and processing is of paramount importance. Choosing to affiliate with a leading firm like Royal Alliance ensures that you have support every step of the way. Rita Robbins, President, Affiliated Advisors, Inc. Capital to cover business expenses: This is probably the top concern of advisors considering a change. What many brokerage or insurance firm advisors don t realize is that they are already paying for overhead costs at their firm, which is reflected in their lower payout. The higher payout available to independent advisors, along with the ability to control their own expenses, often results in a higher net income. Brand name recognition: Some advisors worry that clients won t work with them if they don t carry a business card with a big name on it. In today s environment, consolidation and changes in ownership at some of the bigger firms may actually work against you. Most successful advisors recognize that their clients work with them because they value their advice and their relationship with them, not their firm. Client retention: Again, if you ve worked to build strong relationships with your clients, they are likely to be loyal to you, not your firm. Most large independent firms offer a dedicated transition team to help ensure the smooth transfer of your clients assets from your old firm. They can also help you with communicating the change to clients in a way that makes them feel comfortable. Depth of products and services: Independent advisors today have access to a wide range of competitive commission-based and fee-based financial products and services. Product specialists in the back office and wholesalers are usually available if you need help learning about new products or services and selecting the right mix of investments for your clients. You won t be pressured to meet quotas or sell proprietary products, so you can make the decisions about what works best for each client. Service and technology: The technology and support available today at independent broker-dealers rival the tools and service available at most brokerage firms. You no longer need to be concerned about being able to do the same things you can do today when going independent. And you will gain greater flexibility with the open architecture platform at today s independent firm you no longer need to feel tied down by one firm s systems and technology. 4

7 Choosing a Partner Once you ve decided to make the move to independence, you need to find a partner who best supports the type of structure and practice you want to build. Since client transitions to a new firm can be challenging, you want to take your time with your decision to ensure you choose the best firm for you. A few things to consider are the firm s: Financial strength and stability Scale to negotiate favorable terms for advisors and clients Royal Alliance actually treats me as a client. They are there to support me and partner in my success. I didn t find that at my previous firms. Tom Santucci, President, Gateway Investments Technological and human resources to compete and grow Size and depth of knowledge of compliance and legal departments Payout and client fee structures Reputation and competence of back-office staff Marketing and business development resources Comparing Broker-Dealers If you re looking for a side-by-side comparison of the top independent broker-dealer firms in the business, the major trade publications provide annual report cards throughout the year. You can access these reports on the websites for Investment Advisor ( Registered Rep ( and Financial Advisor ( magazines. Other sources of information include your peers who are already looking to move to an independent firm or former colleagues who have already successfully transitioned to independence. You can also talk to third-party recruiters who specialize in the financial services industry. Wholesalers are also a good resource for insights into various firms. Of course, you ll want to conduct interviews with the broker-dealer firms you re most interested in and set up home office visits with the top two or three. Take your time gathering information and make sure all of your questions are answered to your satisfaction before making any decisions. You know your clients and business best and can assess correctly what will work or not work in your practice. 5

8 Helping You Ask the Right Questions While each advisor s situation is unique, the following questionnaire covers several key topics to help you prepare for interviews with potential broker-dealers. ABOUT THE FIRM Tell me about your firm s history. How many advisors are affiliated with the firm? Do you cater to only independent advisors? Or do you have an employee platform as well? What is the average tenure of advisors at your firm? What is the average production? Why should an advisor like me join your firm? ABOUT THE TRANSITION Do you have a formalized transition process when you onboard advisors? Does your transition process offer flexibility for advisors with unique needs? Do you provide a designated transition specialist for each advisor/team? What type of help can I expect from your transition team? How do you handle client communications? What is your firm s track record on transitioning client accounts within a designated time frame? BROKER PROTOCOL Is the broker-dealer a Broker Protocol participant? The Broker Protocol was initiated in 2004 by three wirehouse firms to eliminate costly and interruptive litigation when registered persons transferred from one firm to another. Over time, a number of other firms, including independent broker-dealers, have joined the Protocol. The Protocol provides that signatory firms will not sue each other when registered persons transfer among Protocol participants, so long as the departing representative takes limited customer information and abides by certain other conditions. For more detailed information on Broker Protocol, please contact Royal Alliance recruiting at BACK OFFICE SUPPORT What is your ratio of support staff in the back office to advisors? Do you have dedicated field liaisons in each area/ department? Do you have service standards for staff to get back to advisors requests? How do you track or measure the service levels for advisors? How do you handle advisor complaints about service issues? Do I have to pay extra for any services provided by the firm? RESEARCH Do you have an on-site research team or do you outsource these services? If you have an onsite team, what are their credentials? Do they offer unbiased advice? If you use an external source, how quickly can I access information and/or reports? Does the research cover individual securities and portfolio management? Is information developed and distributed in a timely manner? What (if any) fees are associated with these services? TECHNOLOGY What is the firm s commitment and resources to technology over the next several years? Are the systems easy to set up and learn? What type of training or support does the firm offer? Do you offer an online trading platform? Do you offer portfolio management and presentation tools? 6

9 What other value-added programs do you offer for advisors, staff and/or clients? What makes your firm stand out in this area? COMPLIANCE What are the requirements for each advisor/office? What types of services and support does your team offer? What type of response can I expect for the resolution of issues? Tell me about the experience and credentials of your compliance department. CLEARING SERVICES Do you use a third-party clearing firm or are you self-clearing? How many trades does the firm typically clear each day? How does your firm s pricing for execution and trading services compare with other firms? What process do you use to address errors or problem trades? How quickly are issues resolved? MARKETING What kinds of marketing programs and services do you have available? Can I get help with creating a brand or unique identity? Do you have websites with pre-approved content available? Do you have any pre-approved newsletter and/or client literature programs available? Can you assist advisors with the purchase of another advisor s book of business? What type of training and continuing education do you offer? What type of offsite training and networking opportunities do you offer to advisors? Do you offer an annual conference for advisors to learn and share best practices? PRODUCTS/ADVISORY SERVICES What types of products and programs do you offer? Do you have selling agreements with the major mutual fund and variable annuity companies? Do you offer alternative investments or structured products? Do you require advisors to sell proprietary products? Do advisors get paid more for proprietary product sales, or is there a level payout across all available products? What types of advisory platforms are available for my clients? Do any of the platforms allow you to personalize client portfolios? Do you have sophisticated products and solutions for clients insurance needs? Do you offer trust and estate planning products and services? Do you offer assistance or training to advisors who are trying to transition to a more fee-based business model? What type of system do you have in place for compliance review/approval of marketing materials? BUSINESS DEVELOPMENT/TRAINING What types of services or resources do you offer to help advisors build their business? Do you provide assistance with the development and review of a business plan? Do you offer business succession planning? 7

10 How Much Will It Cost to Go Independent? One of the primary questions advisors from a brokerage firm ask is, How much will it cost to operate my own practice? While many factors go into determining the cost of running a practice, you can usually plan for the major ones. The following worksheet is designed to help you answer this big question. In addition, most independent firms have a transition team available who may be able to help you anticipate and estimate your start-up and monthly expenses. START-UP COSTS Office Space Deposit $ Improvements (if needed) $ Commercial realtor fee (optional) $ Furniture Subtotal $ Desk(s)/Chairs $ Reception Area $ File Cabinets $ Bookshelves $ Conference room table/chairs $ Lamps/fixtures $ Equipment Subtotal $ Copy machine (purchase or lease) $ Computer(s) Desktop $ Laptop $ Software $ Fax machine $ Printer(s) $ Telephone/Broadband Internet Access Equipment $ Installation/Deposit $ Cell phone/blackberry $ Digital projector $ Server $ Subtotal $ Consulting Services Attorney (corp. entity set-up, etc.) $ Headhunter (optional) $ Subtotal $ Marketing Advertisements/Publicity $ Website set-up $ Stationery/Business Cards $ Client Packages $ Postage $ Subtotal $ Other Licensing/Registration $ Office Supplies $ Signage $ Refrigerator/Coffee Maker $ Subtotal $ TOTAL $ 8

11 MONTHLY OPERATING COSTS (ESTIMATED) Office Lease $ Employee Salary $ Payroll taxes $ Health/Life insurance $ Retirement Plan match $ P&C Insurance/Worker s Comp $ E&O Insurance $ Fidelity Bond $ Telephone/Broadband Internet Access $ Cell phone/blackberry $ Website Hosting/Development $ Equipment Lease (if applicable) $ Document Shredding $ Utilities $ Quotation Service $ Research Fees (if applicable) $ Technology Fees (if applicable) $ Subscriptions $ Advertising/Marketing Newsletter $ Seminars $ PR/Community Relations $ Professional Dues $ Training $ Continuing Education $ Travel $ Entertainment $ Postage $ Office Supplies $ CPA/Accounting Services $ Attorney Fees $ Clearing & Execution Fees $ OSJ Override Fee $ IT Support/Troubleshooting $ TOTAL ESTIMATED BUDGET $ THE COST OF DOING NOTHING After looking at the potential benefits and challenges of going independent, some advisors choose to do nothing. That s OK. Independence isn t for everyone. But you should be aware that the choice to do nothing has consequences in the long run. By choosing to stay in an employee situation, you are limiting your income potential. The typical brokerage or insurance firm advisor who transitions to independence can earn a significantly higher payout versus his or her brokerage-employed peers. Many of these advisors are able to more than double their income as an independent advisor, even when you take into account the expenses of running an independent practice. 9

12 Make The Move Most advisors who make the decision to go independent never look back and often wonder why they didn t make the move sooner. The ability to control your own destiny is a feeling like no other. The right partner can make the transition to independence easy while positioning you to grow your practice to the next level. Royal Alliance understands what it takes for advisors to achieve exceptional success. Whether you re a veteran entrepreneur ready to take your thriving business to the next level, or a top performer seeking the empowerment of independence, you ll find it with us. When you join Royal Alliance, you join a dynamic group of people who share your drive and understand your challenges. You join a roster of highly successful business owners who are among the most sophisticated and savvy in the industry. And you join a broker-dealer with the resources, capital and experience of one of America s largest networks of independent advisors. Whether it s our open architecture that enables you to succeed in your own way, the legendary tradition of service you would expect from such an industry leader, or the satisfaction of being among experienced and accomplished advisors, with Royal Alliance, the message is perfectly clear. You ve arrived. For more information about making the move to independence, contact Royal Alliance Recruiting at or visit RoyalAlliance.com. One World Financial Center, 15th Floor New York, New York For Use By Financial Advisors Affiliated with Royal Alliance Associates, Inc. Royal Alliance Associates, Inc. is a registered broker-dealer and Registered Investment Advisor, member FINRA/SIPC A RAA-REC-CFI-0111