What follows are comments from Arthur Cooper, founding partner of Cooper McManus, a super branch with Securities America:
Cooper McManus – New Ally and New Home
“The decision whether to join an independent broker/dealer directly or through a branch depends on the advisor’s background. I’ve seen those who decide to do everything on their own and ended up spending tens of thousands of dollars of unnecessary money. Coming into a branch we can map out all of those things, bring in the appropriate outside expertise and resources to make sure the advisor is making smart business decisions. That’s a big factor I think a branch can bring to the table. If you go directly to a broker/dealer, you can get a lot of guidance and transition on how to affiliate with a broker/dealer, while the branch can help with some of the basic business decisions on how to structure things, what resources or vendors you have available to you and how to look at certain business decisions. As a branch we also bring camaraderie. There’s always someone down the hall you can talk to about client cases and have that professional communication.
“In a branch office we are able to help put together systems for advisor collaboration. We make sure our advisors get together for practice management, compliance and other advisor communication and collaboration. We can help put together business plans and marketing plans. We can help identify good partners for advanced cases on which maybe the advisor doesn’t have the expertise themselves. Another big way we help is facilitating succession planning and contingency planning. What happens if you get hit by a bus and you are laid up and not able to run your practice for the next six months? In a branch office, we can help ensure clients are taken care of and the business still runs while you are recuperating. If something were to happen and you don’t survive, we can help with the succession planning and make sure that your family does get some value for the practice.
“Our role – depending upon the sophistication, size and type of advisor – will vary from high level coaching and mentoring to a little more hands on training during the transition. At the end of the day, our role is to make sure that those advisors have a successful transition, and once they’ve transitioned, that their practices flourish and continue to grow and they are able to run it how the way they’ve always envisioned.
“Here are some other things to consider and some advice from me, having set up my own practice many years ago and having since helped dozens of advisors transition and set up their own practices as a part of our super branch system with Securities America:
“When you look at your office and equipment needs, look at your current office needs and your future growth needs. You don’t want to be stuck in an office you’ve outgrown and still have a few years left on that lease. Depending on the size of your team, building out your own office space may be your best option. You can design your space from scratch to create a venue that showcases your business to your clients and prospects. On the downside, building out an office is one of the more expensive and complex options; it can also be distracting during the transition of your clients. You may have to deal with leasing agents, architects, contractors, furniture vendors, technology vendors and more. Managing all those moving parts can be overwhelming.
“A simpler option is leasing an executive office space or moving into an established branch office. It provides ready-made access to resources such as technology hook-ups, phones and conference rooms. You can literally buy a laptop computer, plug it in and just focus on transitioning your clients. Once you have successfully transitioned your clients and have a steady cash flow, you can consider going out and leasing your own office space and building it out.
Becoming an Employer
“When you make that transition, will you bring existing staff with you or hire new staff once you make the transition? Either way, it’s important to understand the cost and requirements of becoming an employer, as well as the legal implications of bringing staff from your prior firm or identifying and assessing new staff. Your existing or new staff will need training on new systems and processes with your new broker/dealer, so find out what training support you’ll receive from your new firm. If you decide to join an established branch office, you and your employees can also benefit the wisdom and experience of the branch staff.
“As an employer, you will be responsible for payroll and benefits. You can do it yourself or outsource to a third-party payroll service or human resources firm.
“What kind of business structure are you going to have? Are you going to be a sole proprietor? It’s the simplest structure to start out with, but it provides no personal liability protection. You can look at forming a C corporation or an S corporation, which both provide personal liability protection. One primary difference is C corporations are taxed at the entity level, whereas the S corporation taxation flows through to your personal tax returns. Another option is a Limited Liability Company, which provides liability protection as well as having the ultimate taxation flow to your personal tax return. Your choice will also depend on whether you are an individual producer or part of a group.
“Once you get over to your new firm there should be training and mentoring. One of the initial challenges for advisors who come from a wirehouse environment have is switching from the employee mentality to the entrepreneur mentality. It takes time. You are now running your own business not employed by a broker/dealer. That mindset transition time can take a couple of months to six, seven, eight or even twelve months. Practice management is critical. You want to determine if you going to figure it out for yourself, especially as it relates to how you are going to structure business. Identify what support you may get from your branch and/or broker/dealer and identify what other resources you can leverage. You don’t necessarily want to reinvent the wheel. There are plenty of resources out there and support; it’s just being able to identify and have someone help navigate you through all those different options. Having the support system of mentors and peers to collaborate and be able to share successes and challenges is always helpful as opposed to being on an island by yourself.
“Protecting your business is critical. We find that most new independent advisors don’t realize they may be running their business in three different capacities: as a registered representative of a broker/dealer; as an investment advisor representative of a registered investment advisory firm; and, last but not least, as an independent insurance agent. All three capacities have similar but different regulatory requirements and are separate and distinct businesses in the eyes of the regulators. Understanding those nuances is critical. During your due diligence, find out what compliance support you will receive from your broker/dealer and from your branch office and take advantage of it.
“Proper planning is the difference between a successful and unsuccessful transition. Understand your employment contracts with your current firm, including any non-compete and non-disclosure agreements with your current firm and the privacy laws in the states in which you do business. That will all impact your strategy for contacting your clients without violating your employment contract. So I can’t stress enough, get strong professional legal advice.
“You’ll want to understand how to map your existing portfolios from your current firm and how you will be able to map that over to a new platform with minimal client disruptions. You want to know how to do that transition prior to making the move. You want to make sure your new staff is trained on paperwork and processes, and more importantly understand and leverage all the transitions support and the coach made available from your broker/dealer and/or branch office.
“These are just a few of the elements to consider before and during the transition. Partnering with the right broker/dealer or branch can help reduce or eliminate the frustrations and common mistakes advisors have when making the transition to independence. Remember, you don’t have to do it alone. Help and resources are available, and many of these things can be outsourced to those with the expertise to take care of it for you. You’ll be able to look back and say “Geez, I should have done this years ago.”
Part 3 of the transcript is coming soon. Meanwhile, please look around this site and Contact Me if you have any questions or would like to discuss a possible transition away from your current firm.
Wishing you a very Merry Christmas and Happy Holidays,
John Lindsey, CFP®