Trends In Brokerage

Folio Institutional to Wirehouse RIAs: Breaking Away is Easier than You Think

You don’t have to go it alone…

MCLEAN, Va., Oct. 4, 2017 /PRNewswire/ — As the financial services industry consolidates and the trend toward fee-based compensation continues to grow, more independent and wirehouse broker-dealer representatives and regional advisors are considering breaking away.

This can be an exciting move for some advisors, but to others it may seem daunting.

“Leaving a firm to go out on your own is a complex process, so it’s important for an advisor to be prepared every step of the way,” said Greg Vigrass, president of Folio Institutional. “Breaking away is possible, and there is ample guidance and support for advisors who want to do this. We frequently speak with startup RIAs who are researching the tools their business will need.”

The Myths About Going It Alone

According to Folio Institutional’s national sales team, some of the biggest myths about advisors breaking out on their own are:

  • Thinking you have to go it alone
    “Don’t panic. Today, there are lots of resources, from specialized consultants to dedicated teams of transition professionals, such as Folio Institutional’s relationship managers, who make the move easier,” Vigrass added. Advisors should also look for a custodian that offers seamless onboarding and training. Custodians should also demonstrate a commitment to helping their advisors’ business grow.
  • All custodians are the same
    Choosing a custodian is one of the most important business decisions an advisor will make. Yet, some custodians “wall off” certain services to advisors with smaller assets under management. “Folio Institutional is excited to work with advisors who are committed to their business and show the motivation to grow,” said Vigrass. (Read “Six Key Questions to Ask a Prospective Custodian.”)
  • Technology is too expensive
    Start-up advisors will need portfolio management, performance reporting and robust trading tools right out of the gate. Yet some think adding a flexible model management system, robust tax management tools or robo advisor services are too costly. Vigrass adds, “The expense of these services forces breakaways to make difficult choices about what they’re willing to pay for. Folio understands this, and offers a comprehensive solution with a single, asset-based fee.”
  • Small accounts do not provide ROI
    Start-up advisors cannot always afford to be choosy when it comes to client account size. “Advisors can precisely manage large and small accounts when they combine model strategies with fractional shares. Add in an automated trading system, and advisors now have more time available to build relationships. Also, asset-based pricing eliminates cost as a consideration for doing what is right for all clients in all cases,” said Vigrass.

For more information on the pitfalls breakaway advisors face, read “Breaking Away: The Good, The Bad and the Avoidable” from Folio Institutional Sightlines’ blog.

Excerpts from Breaking Away: ‘The Good, the bad and the avoidable:

 You’ve decided to break away and start your own firm, or join an existing advisory firm. It’s an exciting time and with it comes autonomy, the ability to better tailor your client services, as well as the opportunity to keep more of what you earn. But it’s also a challenging time if you’re not adequately prepared for the inherent complexities of moving your entire practice. Here are some common potential pitfalls we’ve heard about from advisors who have made the leap, and how to avoid them.

#1 – Thinking you’ll have to go it alone – Today there are numerous resources, from consultants specializing in breakaway transitions to “self-help” guides published by leading broker-dealers, to dedicated teams of professionals at those same broker-dealers who can help make the transition easier.

Leaving a firm to go out on your own is a complex process, so it's important for an advisor to be prepared every step of the way,

#2 – Assuming your clients will follow you – What’s the point of breaking away if you don’t retain your clients? Making sure you do so, to the extent your agreement with your current firm allows, is the result of careful planning and communications. Many advisors understandably become consumed with the “nuts and bolts” of breaking away, like legal, tech, and registration matters, and client communications becomes an afterthought. So be sure you’re planning for what, when, and how you communicate your plans to your clients, and perhaps even consider hiring a professional communications firm to handle it all.

#3 – Not doing enough due diligence on your custodian – Many custodians aren’t interested in smaller RIA firms, with some even going so far as to boast about it or “wall off” certain services depending on the size of the advisor’s AUM. In addition to serving large, well-established practices and complex enterprises, a custodian should be willing to accommodate even a small practice. This is an area where you’ll want to do a lot of digging before you select a custodian.

#4 – Overcomplicating your business model – Some custodians like Folio offer a turnkey approach that goes beyond the basics by integrating custodial services with online portfolio management, trading, and brokerage. Services like performance reporting, automated tax management tools, and automated billing are also integrated to further streamline your practice. This approach can help you simplify your business model and avoid the added expense of working with multiple vendors.

#5 – Assuming fees won’t be an issue – Even with a level-fee based compensation structure, you still need to be concerned with keeping fees low. Account maintenance fees, trading costs, and third-party vendor expenses erode your bottom line and that of your client’s. Progressive broker-dealers and custodians offer all-inclusive fees that provide access to many of the services that others make you purchase from third parties, and also provide commission-free trading at both the individual security and portfolio level.

The moment you decide you’re ready to break away is a big one. Choosing the right partners to help you through it and to maintain your business model is one of the most important business decisions you’ll make, and one that will potentially have far-reaching consequences for your book of business, growth plans, and client well-being.




For more information on the pitfalls breakaway advisors face, read “Breaking Away: The Good, The Bad and the Avoidable” from Folio Institutional Sightlines‘ blog.
(Advisors may request a demo of the Folio Institutional platform)
About Folio Institutional®
Folio Institutional is a leading brokerage, custody and financial technology company, all in one. Investment advisors, financial institutions and retirement plans use our innovative technology and modular solutions to build and precisely manage customized portfolios for their entire client base, regardless of account size. Our clients use our state-of-the-art trading, portfolio management tools, digital investing services and alternative investment capabilities to create a better client experience, scale their business and improve profitability. We empower the financial services industry on both a full-service and technology-licensed basis, servicing billions of dollars of investor assets nationwide.
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