If you are a financial advisor who has been considering starting an independent practice, you may have encountered the term breakaway advisor. Referred to as breakaways or transitioning advisors, a breakaway advisor is a financial advisor who wants to leave their brokerage firm or wirehouse and join/start their own Registered Investment Advisory (RIA). In doing so, the financial advisor can become independent and operate their own business, but there is a way to accomplish this goal without dealing with all the hurdles involved in starting a business.
There is a lot of appeal in pursuing this path, and the number of financial advisors becoming breakaway advisors is on the rise. In fact, it is the highest the industry has ever seen, increasing year after year. Some are choosing to leave their current arrangements because of lower payouts, elimination of revenues and other arbitrary decisions. Financial advisors are seeking this path because of those reasons and for the benefits an RIA can offer their clients.
As you may already know, an RIA is a financial organization that provides financial advice to its clients, acting in their client’s best financial interest. An RIA is regulated by the Securities and Exchange Commission (SEC), acting in a fiduciary capacity. This means they are held to a higher standard that is met unconditionally. They often provide a range of financial advice, including estate, tax, and retirement planning. These companies are independent fiduciaries that may sell different products or associate with broker-dealers.
Last year TD Ameritrade Institutional released their Break Away to Independence Spring 2020 Survey. The results showed what many in the industry already suspected. Here are a few of the key takeaways:
- 25% of brokers moving to the RIA channel plan to operate their own firm under the traditional breakaway model1
- 36% of brokers are open to joining an existing RIA firm that has tech platforms and provides operational support1
- Confidence has increased, and concerns about the breakaway transition had decreased by 21%1
- 75% of brokers believe they will earn more as a breakaway with an independent RIA1
- 40% are more likely to breakaway now (2020) than they were 6 months ago1
Many potential breakaway advisors decided to put these plans on hold during the pandemic, afraid that a change at that time could be distressing for their clients. However, as COVID eases, we are seeing more financial advisors make a move to an RIA. It is why this year has been dubbed “the year of the breakaway advisor.”
After asking, “what is a breakaway advisor” the next question people often have is “why become a breakaway advisor?”. There are four main reasons a financial advisor may choose to become a breakaway advisor.
Your independence will likely be the main reason you decide to leave your brokerage or wirehouse firm. Although change can be intimidating, the persistent dream of autonomy will inevitably become too loud to silence. When the pandemic hit, many started working from home and got a small taste of what independence could feel like. Advisors found they were more productive and successful as a result. When financial advisors no longer had to spend hours commuting to an office and had greater flexibility to connect with clients, they were able to accomplish more.
This same scenario is perfect for a breakaway advisor who needs the time to establish their business. Further, as more people have become accustomed to dealing with companies and advisors virtually, you will find it easier to attract clients from anywhere.
- Advanced Technology and Platforms
In 2017, the U.S. RIA Marketplace reported that higher payout was the most attractive piece of becoming a breakout advisor.2 Although this remains important, it is no longer the element attracting financial advisors to make the transition. As seen in the TD Ameritrade survey, tech platforms are a significant reason many are considering their breakaway options.1 Technology is essential to financial advisors as well as their clients.
You, as an advisor, want access to software and technological processes for compliance, billing performance, trading, and account maintenance. You will need to access tech for your customer relationship management systems and financial planning. Additionally, your clients want accessible online tools to review their account statements, activity, and balances.
- Marketing resources
With competition being as high as it is, you need to present an established, professional brand to your clients and instill trust in potential clients. A great example of this is at Fragasso Partners. Here, breakaway advisors will gain access to the renowned Fragasso brand and its marketing efforts. With an entire in-house marketing team, breakaway advisors are provided with turnkey marketing campaigns, including digital marketing, websites, traditional medial, social media, seminars, and public relations. Further, they provide communication for client acquisition, education, and client retention.
- Enhanced client experience
To be successful, client experience must be a priority. Joining an RIA can provide you with the necessary support so you can focus on your clients and growing your business. In addition, by tapping into the existing client experience plan, you will already have the strategies in place to meet your client’s needs. Using the Fragasso Partners example, a breakaway advisor would have access to their client experience plan, which encompasses all aspects of the client-advisor relationship, including the discovery meeting, delivery of the financial analysis, performance reporting, and investment management strategies.
The number of breakaway advisors continues to increase as more people join established RIAs. With more autonomy and greater benefits, it is an appealing option causing advisors to leave. Many have become tired of the limitations experienced in wirehouses and brokerages.
Advisors looking to break away need to consider why they are making the move and ensure an association with another RIA meets these criteria. An established firm with the right technology, processes, plans, and systems in place will make the transition easier. It takes the guesswork, time, and the initial monetary investment out of starting your own business while providing the rewards to you and your clients. When executed the right way and with the right RIA, becoming a breakaway advisor can be one of the best decisions you make to grow your business and see greater levels of success.
An Introduction to Fragasso’s Associated Advisor Model