The ups and downs of independence, in 10 graphs: Schwab

Man raising his arms

Financial advisors considering going solo are considering multiple paths to independence while facing multiple challenges, according to a new study from Charles Schwab.

“The path to independence is alive and well – and, as the study shows, it is evolving in new and interesting ways. There are more choices than ever as financial advisors seek independence,” said Jon Beatty, chief operating officer of Schwab Advisor Services, in an interview with ThinkAdvisor.

“A thriving ecosystem has developed around advisors over the past 30 years – with custodians playing a crucial role, alongside fintech players, outsourcing partners, fee-for-service organizations and corporates who set up platforms that advisors can join. Beatty explained.

This means that the situation is “more complex than ever, and that supporting advisors in the process (of becoming independent) is more essential than ever,” he stressed.

Advisors must decide what services to offer, the client demographic they want to serve, what technology to use, which custodians to work with and how they will pay for the switch, among other choices, the report points out.

The study is based on responses collected in March and April from 200 financial advisors: 158 of them were working for a broker at the time and were considering becoming independent over the next three years, and 42 of them had joined an RIA and became independent. over the past four years.

Here are 10 critical findings from the independence study supported by Schwab Advisor Services. Click on the images from the Schwab report to enlarge them.

1. Advisors take different paths to independence.

Advisors currently considering independence are more likely to join or affiliate with an existing registered investment advisor (44%) than start their own business (31%), while 24% are unsure which route they should take. will borrow, according to the study.

In contrast, recently independent advisors were just as likely to have started their own RIA firm as to have joined or affiliated with an existing RIA.

Among the advisors Schwab interviewed one-on-one, the most risk-averse were more likely to want to join a firm, according to the study, which found that advisors considering independence were worried about the financial consequences of starting their own business.

2. They look to their peers for support.

The survey found that 60% of advisors considering independence are more likely to seek advice from peers who have already made the transition, while 45% said they would consult other advisors evaluating independence.

Nearly half, 47%, cited advisors who have already become independent as the most useful sources of information.

Results were similar for newly independent advisors, with 60% saying they turned to those who had already made the transition and 38% saying those advisors were their best source of information.

“These are very reassuring results,” Beatty said. “Often, advisors considering this move reach out to their peers, so there is a virtuous ecosystem that should drive even more advisors to become independent.”

3. They see different ways to pay.

Becoming independent can be costly, whether an advisor starts their own RIA firm or transfers their business to an existing RIA, Schwab noted.

Advisers surveyed indicated they were or are more likely to use their personal savings to support the transition, with 69% of recently self-employed advisers and 56% of considering advisers citing this method as their preferred route.

Partnering with an existing firm, cited by 33% of newly independent advisors and 48% of considering advisors, is the second most preferred option, which Schwab called unsurprising because this option reduces startup costs for those who have less financial flexibility.

4. The three Cs of success are customers, culture and stakeholders.

Besides money and advice, advisors need to consider other factors that will help them become independent.

According to the study, 47% of advisors who recently became independent and those considering becoming independent cited access to clients who will generate revenue as a key factor in achieving this success.

Creating the right culture for the firm is also a priority, as is the size of the advisor’s current business. And more than a third cited stakeholder support as an important success factor.

5. The most important steps toward independence may not be what advisors expect.

Advisors who are considering this move and those who have already done so differ on the key steps they have taken or plan to take to transition to independence.

Among those considering becoming independent, 68% cited client retention and 53% cited transition planning and client paperwork as the most likely steps they will take to become an independent advisor.

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