I have spent quite a bit of time on the blog and podcast explaining why it might make sense to go independent--and I’ve spent a lot of my fourteen years in the industry either figuring that out for myself or talking to other advisors and articulating a case for doing so.
I think it is time to have a discussion about when you would NOT want to go independent. Obviously it’s not for everybody. If it was for everybody we wouldn’t need this blog. There wouldn’t be 60,000+ employee advisors concentrated in bank-owned firms. So, this is the third in a list of reasons why you definitely would not want to go independent.
Number three I listed was, if you’re looking for the biggest amount of money in your bank on day one that you go independent -- so the upfront check. I did an episode about comparing going independent versus taking the check proverbially.
If you’re interested in that calculation or kind of the analysis I did, I’d go back in that episode but there’s no doubt that if you’re trying to maximize the dollars in your hands, then going to one of the major wirehouse firms would dwarf any money you might get in an upfront transition from an independent firm, typically that’s going to be more of the hybrid channel -- somebody with a broker dealer.
I do see around 20% to 25% (of trailing 12 month's production) upfront money from the large independent broker dealers. These days, as I record this in the middle of 2016, obviously the larger wirehouse firms are going to be four to five times that, if not more. So, again, there’s a whole episode I’ve done on analyzing that.
The catch on the wirehouse upfront money is it’s not your money because if you have a ten-year deal and you sign a note, forgivable loan for 100% of your trailing 12 months revenue, well then really, you’re only earning at the clip of 10% per year because it takes you ten years to actually own that money. It’s just been loaned to you. So it’s a bit of a trap if you’re not careful.
I did do one of those deals back in 2005 with Morgan Stanley. It worked out well for me, as you can listen in episode one. I think I knew I was getting into risks. I even ended up paying them back for the fifth year because it just was worth it to me to start on my independent journey.
But bottom line is the third reason you wouldn’t go independent is if you’re looking for the most amount of money today for whatever reason. It’s just not the way to do it.