From wirehouse to independent

Couple things. If you're at a wirehouse, nobody's gonna care about your doink $7 mil (not being a dick, it's just not a lot of AUM). On top of that, your co-workers realise it's all friends and family, so they're not gonna go richter on them and call you a child molester or whatever to keep the account in-house. With less than two years in the business and a book full of friends and family, it's almost like you're not even there.

Look at the numbers: even at .0125 in management fees you're looking at $87,500 gross which means you're somehow living on less than $40,000 a year. Believe me, they won't even know you're gone.

Now get out there and raise some assets.

Thanks for the comments! I do realize it is not much when it comes to AUM, but being in my mid-20s and knowing I have the skill and knowledge as-is to go ahead and make the move, I've decided now is best. While my biggest focus is raising assets, of course, it is not an extreme concern of mine as I go independent because a handful of my clients/prospects are 25mm+ net-worth clients and all have expressed the fact they want me to be the one overseeing it in the next few years as their old advisor(s) retire.

While you're right about the likelihood of having to live off under $40,000 a year in the beginning, that is fine by me, I currently am doing this in the program i'm in..so not much would change. ;) It just means that as I grow my independent business I'll quickly see the fruits of my labor vs. my capped "trainee" salary in my current position for the next 1-1.5 yrs. I just don't see the need to be giving up 55-65% of my revenues/fees to this firm when I could branch off on my own and handle it all myself and make twice as much... there is so much more incentive there for me to grow my business at that point.

If anyone else has comments or concerns please voice them, I'm always interested in hearing what your situation was if you've left a big firm to go independent.

Thanks!

I agree with Eddie on the branding issue. Having a Merrill Lynch, Morgan Stanley You're young and it will be much easier to convince people to give a "kid" money when they have the backing of a well known firm. Shouldn't you bee off salary by now and working on commission? I assume you get bonuses for new assets as well. If you do indeed have these 25MM+ connections you should easily clear that $40,000 you make now

I completely agree with the branding issue. This will take time and perseverance to overcome but I know it isn't impossible. There are less than 5 clients I really expect to come with me, two of which are givens and will supply me with enough AUM in the beginning to make it a viable move at this time (one is 25mm+ but not ready to give it all to me, of course). The other high net worth individuals I am speaking of I expect will take 1-3 years before I begin to see the fruits from that relationship, that is ok.

Having the big name behind me has helped some, but with the clients I have (as well as my top 10-15 prospects), they have known me for over 15 years so my company backing is less of an issue... it will be more of an issue as I go to find new money from new individuals, but I am well aware of this. I won't be off this salary for another ~1.5 years, and while I have been hitting some of the bonuses, i've been around or slightly beyond my hurdles the entire time. I don't want to wait another year where I may have management breathing down my neck (re: hurdles), on my small salary, before I decide it's time to make the move. I've determined that in the coming months I believe it will be best for me to go ahead and look to the transition, as difficult as it may be, vs. waiting til it becomes almost a necessity once the hurdle rates go parabolic in the final 6 months. It has become apparent to me that i'm just not a perfect fit for where I am at, but that I really do want a career in this industry.

My only other real concern is if they'll try and come after me to repay "training costs" from the last 18+ months. I've heard from a few on here that some companies have threatened or sent letters requiring that, but others say if you leave or wash out they just forget about you. I looked at my employment agreement last night and no where did it mention I had to pay back these costs, as my employment with them is "at will" by both parties. The only red flag to me was the 180-day non solicitation clause which I think i'll be able to get around pretty easily (if my former clients request to move to my firm vs. me asking them, then I have not violated the clause).

Has anyone heard of any issues when leaving a training program to go independent and the firm finding out and requesting you pay them back a certain amount?

They'd never risk the bad press of coming after a kid who washed out of their training program to recoup training costs. Never gonna happen. One thing you need to make sure of, though, is that they don't ding your U-5 on the way out the door. Just make sure you handle yourself with class and you shouldn't have a problem.

One thing is really bothering me, though. If you have that few clients, you clearly haven't been working very hard. Understand that's not a value judgment on my part - you're making enough to live. But what makes you think you're going to work harder when you don't have a manager breathing down your neck? A big part of success in entrepreneurship (which is what you're considering) is self-awareness. If you haven't developed the habits to be successful in an environment designed specifically to teach you the habits to be successful, what makes you think you'll develop them outside that program?

The other thing that really bothers me is your choice of careers to begin with. Even with $25mm AUM at 1.25% and an 80% payout you're looking at $250,000 a year minus expenses. And you'd have to quadruple your book to get there. In a market for individual financial advice that is shrinking daily.

I'm not trying to be negative, I just want to make sure you're going into this with your eyes open. I assume you're in your early 20's. Do you even think retail financial advisory will be a business when you're in your 40s? Because I don't. I started in 1992 when complete morons made $120,000 a year just for showing up. Now guys who bust their asses make as much as a kid at Jack in the Box. Not for the faint of heart.

Edmundo, I agree with everything you have said -- you make a valid point in those areas. I dont think I elaborated enough regarding my client base, but I do have close to 20 clients I have gathered myself in the last 15-18 months or so. The reason i'm speaking in such small client-base terms is because many of those are clients I have recently met and would not expect to come with me, and some are small enough to where I wouldn't really count on them as being my "core" client group at the new firm. I am not afraid to prospect and I have received some of the best training I can in the industry because of the company I am with, but going back to my main point -- I just don't think i'm a good fit and ultimately I really just work the hardest when it has my "name" on it -- in whatever it is.

You're also right when it comes to working in this industry... While I left out the additional info cause it didn't seem terribly fitting in the context of our conversation, as I make this move I am also partnering up with a small hedge fund. The manager is my close friend and a quant and is very good at what he does, and has an extensive network of incredibly high net-worth individuals. He is also in the early stages of his fund, but we both have the same vision and will be partnering up together (part ownership in both firms) under the same "brand name," but different legal entities, to offer advisory and HF services. This should be a synergistic relationship both from an asset-management point of view and an asset-gathering perspective with our joint contact base. So with that said, while I do enjoy this business and love the industry, I don't expect at the age of 40-something i'll be strictly an FA/owner of an RIA but have my hands in a few other parts of the industry, the hedge fund realm being one of them.

It may appear ambitious, and I agree it is, but I am willing to put forth the work to try and accomplish this and going independent to start the process seems to be the best choice. I intend to grow this organically and as cautiously as possible as I am not trying to amass wealth overnight by taking shortcuts. However, staying in the program, finishing it up, and remaining a wirehouse-advisor for a few more years before leaving just isn't in the cards for me, I don't believe.

Oh, I completely agree with getting away from the wirehouse and opening your own shop. I mean, why not really? The payout is better and the business really is becoming a commodity where everyone is offering the exact same thing anyway.

You're going to have to do a helluva lot better than one new account a month, buddy. That's just the reality of the situation. When I was doing it I shot for 20 accounts a month. I think I probably only hit that once, but I would literally panic if I ever went below 10 in a month. I know a lot has changed in the intervening years, but it's hard to imagine one new account a month keeping food on the table. New accounts are the lifeblood of the business.

All that being said, the very best of luck to you, sir. Truly.

Thanks for the best wishes, I certainly have learned over the year(s) that it really is a numbers business. I have tried to work "smart" vs "hard" meaning that I always aim for 1mm+ accounts instead of 20 $50,000 accounts but the reality is those 1mm+ accounts can take a year or more to get. Low hanging fruit is key in the beginning my mentor has said, and I've realized there is a lot of truth in that... it's just no fun prospecting people with 100,000 vs people with 5mm. I know as I make this transition i'll need to work smart and hard, it's not a one or the other type game if you're trying to survive in the industry.

Independent or RIA? I assume you understand the difference but you keep using the terms interchangeably and they're not. Have you spoken with any independent B/Ds or custodians? Will they even take you with such low AUM? Do you have a grasp on what the initial start up costs will be and also the ongoing monthly expenses? It doesn't sound like you have really thought this out.

Not trying to be a prick but you need to do your research long before you should be worrying about anti-compete clauses and repayment of training costs. Also you don't have enough AUM.

I know you don't want to hear this but I'm going to say it anyway....you need to stay where you are and build your book first. I am at a wirehouse, have been in the business for 10 years and know what I am talking about. You'll have almost no chance at all working at a no name firm because you are so young and have a limited amount of time in the business. I would wait until you have a minimum of 5 years in the business and at least 30MM in assets.

If your at ML, they may make a play for it.

I am sort of on the fence too. You have to consider what is feasible and what is not. We are entering a down-turn economy, and Financial Advisers in my area are looked worse then bottom-feeding lawyers (personal injury) due to the sheer amount of bad publicity they have obtained over the years.

The bottom line is that everyone, EVERYONE will do whatever is best situated in their position. If you are unable to keep the ones that say they will go with you but do not, just keep focus and build. However, work smarter, not harder. There is no easy answer to all of this, but make sure you are doing it for the right reasons. To me, I like the independence, flexibility of my schedules, and control of my work.