How To Go Independent

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A "one firm for life" advisor goes independent -- part 2 of an ongoing series

InterviewsSean KernanComment

This is part two of an interview I did recently with an advisor currently in the transition process. He built a successful practice and decided to make the leap to independence despite being a "one firm for life" advisor early on. I've changed his name in the article to protect his identity. You can read the first part of the interview by clicking HERE

Sean: Well, I'm talking to Michael Scott again. Michael is in the planning process of going independent from his firm that he's been with for about twelve years. So, Michael, how far are you from making that move at this point now?

Michael: If everything holds true I will be making the move in 48 hours.

Sean: Awesome. So how long has it been now that you’ve been kind of in full-blown planning mode? I know we’ve talked last time about the bigger picture but how long has it been since that first look  -- "I think I really want to look at this really closely?"

Michael: Well, it's been a good two months, I would probably say closer to get all the questions answered to get everything lined up the way you’re gonna need it to be for an office, for getting everything ready to be able to contact the clients. It’s a lot of work but at the end of it you sort of look at it in terms of this is the investment you got to make to have your business prepared to succeed right at the start.

Sean: Right. I think it’s been about ninety days since we first started talking in depth and like you said you’ve done a lot of work in the meantime but also you’ve got a significant business to deal with. You probably have the added benefit or one thing that I should mention for the timeline is that hasn't included spending a lot of time searching around, shopping ten different broker dealers, different organizations. That shortens the process a bit. So someone starting from scratch that doesn’t know anybody. That might add a little bit of time but you are about what, ninety million assets right now?

Michael: Yeah right in that range, a little more than that. The thing is for a book of any size I think you just got to do yourself two to three months. Once you know the direction you want to go and get that prepared and avoid any pitfall that could really because you trouble down the road. In the long run, the more time you can get yourself, the more planning you can do. It’s gonna help you more than it's gonna hurt you in getting everything going

Sean: I know you’ve certainly been very busy but again you’re pretty organized. That’s correlated with building the kind of business you've built, but I think one's organizational skills are definitely tested in this kind of scenario but you don’t seem overly rushed on the surface. Have you felt some amount of stress?

Michael: Not especially, Sean. I think the normal anxiety that build up with this - the work on having to do outside of the office at nighttime or weekends, stuff like that -- the anxiety for just moving from the one place you've been used to and the people you’ve been working with all these years and realize that changes something. That for some people would matter. That’s been probably the harder thing to keep your mind wrapped around, making the change - not just for your clients but recognizing that there’s a lot of your fellow advisors, your assistants, that you’re having to say goodbye to.

Sean: Yeah that’s not a good part of the transition but obviously it doesn’t override what you think is best for you and your business and your clients and family for the long run.

Michael: Absolutely.

Sean: What in particular have surprised you about how easy or hard it’s been so far? I know you’ll probably have some after but so far anything that's been...

Michael: Up to this point I wouldn't say there’s been terribly surprising except for one thing -- I have been very surprised at how much more client inspiration I need for this transition than what I have. That part has been surprising because there's just a lot of information I don't have on clients that have been basically allowed the go by my current firm. So that part obviously creates a little more work on when you give folks over. But on the whole it's been what I expected it to be. It hasn't been anything surprising on that side of it.

Sean: I think some of that I may have lost track because I’ve only open accounts one way for almost seven years now. I know some of that is probably just when we started the business. The amount of information and detail that we have to collect is simply not going down. But a lot of times, once accounts are open the firm seems to be the last worried about tracking down everyone's favorite colors. We both know that there's no way we could serve them properly.

Michael: Yes exactly.

Sean: And make sure we don't show them the wrong color to cause them to feel uncomfortable or something. So talk a little bit about kind of what you're gonna do from a setup standpoint from an office and staffing at least. Give me a sense of how much time and energy, what kind of costs you are looking at in the setup for your office and then your staffing in the short run.

Michael: So fortunately, in the short run, because of the help that your group is able to provide to me, and you know that I have the fortunate ability that I can get help as well from my wife a little bit on some filing and stuff like that, I’m not incurring any cost there. Part of that again is because of the administrative help from your firm. But in terms of office setup what we’ve been looking at or what I’ve got is an office in a professional suite in Scranton, Texas.

And for the space that I have and everything that's included with it -- the communication, phone, internet, everything there -- that's gonna cost right around eight hundred dollars a month. Obviously that adds up to the person who is looking at the model for what they want, if they need bigger space and more urban area it’s gonna cost more. Again that’s one of the nice things for me -- that you're able to control that. I went out and purchased furniture for the office and art and everything to put on the walls.

Probably when it’s all said and done, new computer system and everything there -- it's probably cost upfront I would say somewhere in the neighborhood of about seven thousand or seven thousand five hundred, something like that. When you factor all the office furniture and art and computer and printer everything there. And I didn't get brand new office furniture so that helped too. You go and get used office furniture that is still in really good shape and get paid a quarter of what it was originally. Those are the things now as a business owner that you really have the flexibility on but you really have to consider. For me that was a big thing, again, with what I needed to get up and running. But that’s part of the investment but in the long run the investment for getting this started should be recouped fairly quickly, I would say.

Sean: And widely depending on production, broker dealer, and the environment we’re in and such. Can you mention briefly at least a percentage of your gross revenue, kind of what the transition assistant looks like from the firm we’re affiliated with? There's some help from the firm and broker dealer firms to make a little bit investment to help offset that initial offset which is kind of helpful. It's something like you did going to a major wirehouse but I want to at least mention that.

Michael: Yeah I mean that probably is another big thing for your group. They offered personnel that could help with the move.

Sean: Yeah not every firm or every organization or broker dealer have the same but that's definitely a big value. I used her seven years ago and she's been doing it ever since and got pretty good at it. So that helps. I was also talking about the cash infusion that you get, if I wasn't being clear. Sometimes I’m not.

Michael: Well certainly between the catch and fusion of signing the agreement to come over to help with the upcoming cost about looking at it in terms of my twelve month production to get 25% upfront and then your practice got some money as well for the help from the broker we are working through. And obviously you can get a lot more than that if you go to a wirehouse upfront but you're also getting your very low payout going forward, not to mention the risk of pairing with that, whereas this, you got something upfront to help for the first six to twelve months of compensation, if not longer. Your assistance through 360 is certainly going to help with it. So it's a win-win as far as I'm concerned. I just don't see where that’s gonna hurt a guy like me making the move to independent to have more professional help.

On the days that your spouse may not be able to do -- in terms of beyond filing or beyond helping you get printout or mailed out or something like that -- this is the actual need of a trained/experienced assistant to be able to help with in this transition. You guys give us that the first few months of this until I can decide what staff situation I need to look at there.  But the focus needs to be right now and getting over as many people as you can and not worrying about how much is it gonna cost for my assistant and benefits and all that stuff. That will come in time. 

Sean: Right. And I want to mention this because of the overall picture because to me for sure (probably to you as well) get close to that point -- that seven thousand dollars is just an investment in your business, maybe you can briefly touch on that. It's different having to write that check or swipe that card, spend that money. It's different. Was that a weird thing when you start spending that money or you’re already kind of accepting the fact and used to it? Tell me a little bit briefly about it.

Michael: I would say both. Obviously you're not used to being the guy who has to go to the office supply store or office furniture store and pick out anything. That’s not something that you’ve ever had to deal with. It's a little different. It's certainly not my cup of tea but on the other side of it, you’re fully prepared for it. I mean that’s when you decide this is the route you're gonna go. The reality basically comes down that you're in control of all of it.

When it comes to IT stuff or office furniture setup by no means anywhere close to an expert but on the other side of it, nowadays (on the IT side), buying brand new computer system and a brand new printer and all things like that, it’s cheaper than it certainly would’ve been five or ten years ago for something that’s gonna run much more efficiently. And you’ve got different places that you can set up agreements with -- basically bigger IT person. I mean there's a lot of things that you're assuming control over but you're really not taking on that fully.

Sean: So the overall picture (like you said), you could find someone to go get your stuff. In fact as you’re talking about it I was thinking it might be a thing for our network to develop sort of (or we should probably have) here's the recommended - if you have no interest in that decision, here's our approved practice, current computer. That would probably a service we could add. Part of the reason we have them is because once you get into it, you realize what kind of laptop (or desktop) you have is not gonna be the reason you fail. I know that’s kind of out-of-your-comfort-zone thing for some people especially who's been in the business a lot longer than we have, or they’re older, whatever the reason is, they're just not comfortable with technology. But I know you're like me. You’ll figure it out. It's not your favorite thing but it’s not that you can't do it.

Michael: That's exactly right. Again it's a part of what you're gonna take on for the additional 40% to 50% payout increase. If you look at it from that standpoint -- you paying a little bit more for some of this stuff but you’ve got that kind of control - you can factor that in to say “okay that counts towards production of some former passion” but you have a really hard time convincing me that anybody who’s competent enough, who’s been in this business to make this kind of a change wouldn't be able to do this in a way where it would still wildly play in their favor. I mean, if not, then you really probably need to think a little harder about it.

Sean: Right. Amen. Preach.

Michael: Not to be "blatantly obvious man," but you know, it’s basic.

Sean: Yeah that's a great point and I’ve played with different outsourcing. You know, you can find someone in this day and age to do just about anything for you -- I need this computer, I need this.. You could never touch any of it if you want to but the other point is “I’ll talk to you about this in a week, three weeks, three months, whatever, or the next year or so.” The amount of time or time investment is a big thing (I think) in your case or any successful advisor really. Money is one thing, but the cost of time but I think what you'll find if you haven't already is obviously this is a one-time investment. In this infrastructure that you’re setting up, it’s pretty simple, which I like. I think that's smart. But a year from now or three years from now, you have to replace your computer here and there or a printer breaks. And I always need ink, generally, it's nickle and dime stuff from a cost perspective.  Is there anything else as you get ready to pull the trigger that -- I know the big lessons will come probably a week from now or two weeks from now -- you’re particularly concerned about?

Michael: Nothing really. Obviously when you make the change, probably the biggest thing that you really have to look into is health insurance because of the time that we’re in and looking at everything whether it's continuing COBRA from your previous broker dealer to getting your own family health plan, considering one of the christian healthcare, cost-sharing, agreements that are out there these days. You just have to look at what’s gonna be best for your family. That's not an easy decision. There’s just a lot of pros and cons you have to look into cost-wise. Health insurance, this is no surprise to anybody who’s used to it. This is a difficult one. I would say family-wise, that's been the biggest concern with everything.

Sean: Gotcha. That makes sense because even though it’s not cheap for most advisors I need to do more research to remind what I need to do before you pull that with you or let me extract. You know, what people are paying at their existing firms, it’s expensive but it’s sort of negotiated. If the research is done that makes it easier, at least you know you’ll probably get a decent deal. And in the largest ten or twenty firms out there as you're part of, you’re gonna get -- not cheap -- but as good as a deal as you’re gonna get probably.

We can debate the merits of the Affordable Care Act. I think that's one thing that people who maybe couldn’t get to check down their ability to go independent to open the door, again there’s certainly issues of that as well. There’s an option, there’s almost too many options and it’s hard to have general guides even because of the different ways people approach things. I need to put up some more information on different ways but that’s time-consuming and as much as I like making sure I have the right thing for myself, it’s not really the most fun thing to talk about.

I remember (I don’t know if I told you the story) before I left the big firm seven years ago, my wife was quite concerned about that because we were planning to have another kid at the time. There was no Affordable Care Act at the time so that was a big deal to her. So there’s a friend of ours in the neighborhood (I think she was pregnant at the time, self-employed and has small business), came over and said "it'll be okay" which helped but I don't think she really believe that. She might not believe today. You and I understand know how insurance works but it’s definitely something to work through for sure. And one more thing, it just occurred to me, how's Angela holding up? Is she good to go? Does she seem more nervous than you or not?

Michael: I would say it's probably even but I would also say her excitement level is very much with mine. That has been very helpful for me and I can't do this without her support and help. She's been wonderful and I would tell anybody that same situation -- you're making something like this, you're married -- you really do need to have everybody on board because you’re gonna be working a lot more early on. They need to understand and feel like this is for them too.

Sean: Yeah that’s a great point. Kind of Dave Ramsey’s live-like-no-one-else-so-you-can-live -like-no-one-else type thing almost applies. You did that as I did to establish the business and this is another kind of phase. I’m excited for you and I look forward to talking to you again. I appreciate you sharing your experience and expertise because I think it will be helpful to people in the future. I feel like talk is cheap and I think it’s good to have your pre-move insights. Anything else you want to add?

Michael: I think that’s it!

Sean: Alright man, good luck!

Michael: Thank you!