We must walk consciously only part way toward our goal, and then leap in the dark to our success.
—HENRY DAVID THOREAU
Consider all that has transpired in your life and career to get you to this point. You joined the industry, learned your craft, built your book of business, developed relationships with clients, honed your techniques, and dedicated yourself to understanding the latest products, tax implications, and macroeconomic factors.
You collected your checks and enjoyed the junkets along the way, but you also began to see the dark side. You began sweating the details, worrying about keeping up with the sales requirements, and chafing over the ethical dilemmas involved in situations you found yourself in. You started questioning whether you were getting a fair share of the income you were generating and whether you were truly working in your customers’ best interests.
Eventually the questions outnumbered the answers. You entered that Middle Earth stage where you weren’t ready to leave but wondered whether your current arrangement was sustainable. Your blood pressure spiked; your sleeping hours dwindled. How long did that last—months? Years?
Significant life changes generally do not appear with the snap of fingers, like the asteroid crash that extinguished the dinosaurs and most other Earth species. So, if you’ve found yourself immersed in dissatisfaction for a year or two, take heart: transformation is a gradual journey.
Eventually, the ball crosses the goal line, and you are ready to act. Even then, you’re merely in the research and development stage. You start sniffing around other advisors who have made the change and asking about the process. You begin researching the relevant financial arrangements. You realize just how many mental heuristics are involved in calculating how you get paid. You discover that payout ratios for financial services firms vary widely by firm and product type.
According to FinancialPlanning.com, 2019 payouts for mutual funds were as follows: Ameriprise Financial: 90–95 percent; AXA: 50–91 percent; Kestra Financial: 65–95 percent; MML Investor Securities: 40–83 percent; and SFA Partners: 90–92 percent. (The complete list is much longer; we just pulled five at semi-random across the alphabet.)13
You need to know the fees you will pay for all the administrative requirements. For example, consider the advisory administration fee if you’re planning to manage your clients’ assets yourself. Expect to pay ten to thirty basis points for billing, client statements, and performance reporting. There are countless other potential fees across various arrangements, all of which you must determine before severing ties with the corporate structure. While we could write chapters on this one point, we will save you the suffering. Simply put, having an excellent team to support you will help you navigate the options.
There is still much more to be done, even once the decision to fly north is made. First, decide whether to fly solo or bolt-on to an independent firm. Write the departure plan, build a “go” binder, save the cash, and prepare the family. Draft the client script and research the hardware and software you will need. Collect the necessary data to continue delivering exceptional service to clients. Hire a lawyer and write your resignation letter.
You’ve done all that and here you are. Prepare for takeoff in 3…2…1… Blast off!
Whew—you survived. We did and you will, too.
There was a movie in the 1970s called The Candidate. Robert Redford plays a charismatic young politician who agrees to wage a quixotic campaign for the governor against a popular incumbent to gain favor within his party for future opportunities and spread his idealistic messages. As the campaign ensues, the party handlers begin fine-tuning his speeches to widen his appeal, and the polling gap narrows. With the cynical spin doctors increasingly in control, the message becomes more generic, losing its idealism and gaining electoral support.
By the movie’s end, Redford’s character squeaks out a thrilling and unexpected electoral triumph, an outcome even he was unprepared for. During the victory party, he pulls aside his chief political handler and asks the question that brings down the curtain on the movie:
“What do we do now?”
That is the stage you have just entered.
You have endured the gauntlet of disengagement from the talons of fear, compromised values, and psychic pain. You have your script, and you make announcements. The fear of rejection quickly ebbs once you begin your conversations, particularly if you have emotionally prepared yourself to endure the agony of defeat and the thrill of victory. So, what do you do now?
First, you dispel all your expectations in advance. You will not keep all your friends or those you believe are your friends. One or two whom you are confident about share your feelings will express disappointment or outrage and accuse you of disloyalty to them personally. On the other hand, some colleagues will surprise you in the affirmative. You didn’t give them credit for being open-minded, tolerant, or particularly supportive of you and your career. Still, they wish you the best, connecting you with people or offering ideas to help you progress. Your only expectation should be that the unexpected will occur. You don’t really know who’s coming with you until they are coming with you.
Here’s what we both learned with our assumptions: you simply never know. We both ended up with more sizable assets under management, revenue, and profit than we expected, though we have learned that is not always the case. It was like taking a cross-country road trip in your car and estimating the time it would take. You might arrive at your destination earlier than anticipated despite encountering some unforeseen roadblocks in unlikely places like central Kansas and some unexpected smooth sailing like through a big city.
Another variable is the response from the firm you are leaving. Some companies have a battle plan at their elbow and plenty of experience grappling for every client. They enter DEFCON 5 and implement their tried-and-true plan, which can include whispers about your mental stability, aptitude as a financial advisor, or commitment to being a fiduciary, or it may focus on benign topics like their one hundred years of experience managing portfolios and assurances of improved performance. In either case, a strong counterattack presents a tremendous challenge.
On the contrary, a company that sees the futility of fighting back and has experienced only marginal success when trying to maintain clients may present a listless and token response (opt for that one if the choice presents itself!).
Daren’s former firm had a well-oiled fighting machine and got on the phone immediately to intercede and frame the narrative. However, Carmine’s ex-firm took three weeks to meander back into the fray; clients were set with their decision by then. In the end, it doesn’t matter all that much; what matters is your relationship with your clients. The details of how and when you contact them matter, but relationships supersede logistics.
One mindset that will enable the path to emotional well-being during the initial days of transition is an adjunct to the idea of sidelining your expectations. Our motto when it comes to rebuilding your book of business: 100 percent is for losers.
Don’t get us wrong; we would have loved to sing kumbaya around the campfire with all our pre-transition relationships. We both highly approve of everyone loving us. Bring on the adulation! Thank you, Denver! Oh, we’re in Cleveland? Thank you, Cleveland! We would have been thrilled to see every customer lighting their phones for an encore and posting their undying love for us on social media as if we were Taylor Swift. (To be crystal clear, neither of us is Taylor Swift; we’re rarely confused with her in airports and at conventions. In the shower, however, you might confuse us with Bruce Springsteen.)
The problem with 100 percent is that it’s not a good business decision. It’s like those public opinion polls asking people if they support the death penalty for parking tickets or serving rat poison with school lunches. When they announce that the public overwhelmingly opposes both by a landslide, with 94 percent opposed and 6 percent in favor, you must wonder who those 6 percent nutcases are. We’re not proposing that your clients are nutcases, but there will always be outliers. Aiming for unanimity is just dancing the tango with futility and a prescription for disappointment.
Aiming to capture that outlying 10 to 20 to 30 percent will distort the message for the bulk of your relationships who are only too happy to join you on this new journey. Stay off the 100 percent road and travel a path where you are more inclined to capture the largest number of your best relationships, knowing that there will be losses. When taking on a “best-interest” standard, exclusivity is your friend. Not everyone should be your client.
The average relationship retention rate is about 30–80 percent, depending on circumstances. Why?
You will discover countless interlocking relationships preventing people from migrating over with you. We experienced numerous circumstances: some people had a personal affiliation with the original firm, like a sister who works in their legal department. Others kept a portion of their portfolio with us and the rest with someone else. When we announced our departure, they took the path of least resistance and left all their holdings with the other folks.
Daren took on a noteworthy new client shortly before leaving his previous employer. During their original discussions, she demanded to know how long he planned to remain with the firm, forcing him to tap dance around the issue. By law, the industry prohibits financial advisors from revealing to clients if they plan to leave their current firm. This rule is another example of how big firms create a conflict between their workforce and clients. Daren would have been transparent with her if that hadn’t put him in legal jeopardy; in this case, being transparent could be interpreted as “selling away.”
She was furious when he announced his departure, insisting that Daren had misled her. Daren considered not taking on any new clients for some time prior to departing, but if production dropped, that would have drawn additional unwanted scrutiny. It’s a no-win situation. Rather than blaming the firm or the industry, this individual blamed Daren, the messenger, who, in effect, devised the rules related to the transparency, and she had to be chalked up as a loss. Transition is imperfect, and you will have these bumps along the way. The key is to keep going. Winston Churchill is often credited with saying, “If you’re going through hell, keep going.”14
When we said we wanted to be valued, that’s only partly true. In hindsight, we realized that while adulation would have been welcome, neither of us genuinely desired to maintain every relationship at all costs, and it’s likely that you shouldn’t either. When growing a business, only some relationships that were once a great fit are still a great fit. The ever-evolving ideal client dilemma is one that many struggle with within the industry. Transitioning to a new firm is an excellent opportunity to adjust one’s ideal relationship base. Some of those left behind were merely transactional clients, people with whom we had had little or no ongoing contact. These are not high-value relationships or high-value prospects.
Moreover, recognizing that there are only 168 hours a week—and you must spend some of that time calling one another and mocking the taxes in California and the chemical plants in New Jersey—it is malpractice to keep three hundred clients and expect to deliver anything remotely close to adequate service to them. This unsustainable model is the preferred operating method for large financial services firms—they prioritize constant expansion—sell more, more, ever more. However, we value our relationships and, consequently, found it necessary to trim our client roster. This reality exemplifies that big firms are in the sales business, solidifying our desire to be in the relationship business.
While it may be tempting to maintain as many of your relationships as possible, some relationships are better suited for someone else, and you’re better for it. Carmine had one client who liked him but just wanted to buy bonds. There was no argument for him to come along and pay an advisory fee. One relationship told Daren he just wanted his help executing transactions and didn’t value the wealth management aspect of the relationship. We wished them Godspeed in both cases and moved on to better fits. You must be thoughtful and selective about those you agree to let join you, especially because now that you’re a fiduciary, they can sue you when you mess up. If you bring everyone along, it is a sign that you must clarify your vision more precisely.
All that said, we were very successful in maintaining the relationships that we valued most.
That is the client side. Then there is the professional side. When you leave, you will leave all your colleagues in the company behind. If you work for a printing company, physician’s practice, or a plumbing supply store and exit to forge your own path, leaving on good terms despite the new competition for customers is possible. There is an unspoken understanding that everyone is acting on their own ambitions, whether collecting the gold watch or moving on when the moment suits you.
Accountants who jump to the competitor in town, athletes who sign a contract with an opposing team, real estate agents who take their contacts to the rival company—all of them are understood to be doing what is best for them. Only in financial services is this somehow considered an unpardonable heresy. This is because rules have been designed by regulatory bodies, bought by the large brokers, to keep the COGS in seat.
The irony here is that in all the examples we offered, the departing worker would have a much greater affiliation with the big company than we had. They would be employees with a guaranteed paycheck, health insurance, and vacation time. They would have a desk at the company office and work alongside their colleagues there. Their loyalties, unlike ours, would be entirely to the company. Our loyalty was and always is to our company, with which we have an intimate relationship, as the owner. If you ask an Amazon, Exxon, or FedEx employee whom they work for, they will name Amazon, Exxon, or FedEx. If you ask a financial advisor, they might tell you the name of their firm or say they work for themselves. They might tell you they represent Global Insurance Conglomerate, Inc., but the local office has their name on it.
The point here is that we have looser bonds to Big Brother than almost any other profession, and yet, our decision to apply our trade elsewhere often creates bad blood, the kind not seen in other businesses. It’s like an old joke about why the politics in academic departments is so vicious. The answer: because they don’t matter.
You probably know what is coming: when the grapevine heated up and word got out about our new venture, the fallout was predictably mixed, which is to say far more negative than it should have been. After all, if you left your job as a physical therapist at Johns Hopkins for the same job at the Mayo Clinic, you would be shocked to hear a single discouraging word, much less a chorus of anger and bitterness. On the contrary, you might expect a goodbye party, parting gifts, and hosannas from your coworkers. Perhaps you don’t think the analogy is exact, since you wouldn’t take clients, but it’s not too far off. In every other profession, people wish one another the best in their future endeavors. But because the big firms pepper their advisors with a steady stream of “us versus them” propaganda about loyalty, not all minds are ready to hear that there are cracks in the logic.
Be prepared for blowback, and for dismissing those who express anger, disappointment, betrayal, and frustration as projecting their own discontent with the circumstances rather than with you per se. Daren received multiple notes from colleagues stating their disappointment in him. One note he received from a mentor at his previous firm still echoes, “I am disappointed in you.” The loss of friendships and colleagues will hurt, but stay focused on your true north. Know the why behind what you’re doing. As the Bible teaches, “Forgive them, for they know not what they do” (Luke 23:34 KJV).
Once you leave, some of the people you consider your friends at the firm will give you reasons why they must stay. You become their mirror. That’s okay; they will continue to operate as they do now, for good or ill, or will eventually join you in a transition they are currently unprepared to make. Give them their space because you have much bigger fish to fry. See the person, not the firm they work for, and rise above the propaganda they are fed.
Engaging with every displeased former colleague who feels personally insulted opens the door to a soap opera that you don’t want to play a part in. It’s like celebrities getting trolled on Twitter; they must learn to just let it go because responding to the trolls leads to descent into their subterranean world where the rats and cockroaches live. As the old saying goes, “Never get into a pissing match with a skunk.” It is best to focus on your new journey and vision and cease communication with anyone from your old firm, as communication with previous colleagues could lead to a lawsuit. Additionally, anything you say could be pulled into legal proceedings. Your previous employer will use anything you say against you. By sharing much with friends, you could accidentally pull them into a lawsuit.
That isn’t to say you should ignore your friends but differentiate between those who are important to you and who appear open to a discussion and those who are just spewing venom. Also remember that you need to protect your friends from being drawn into a deposition should your old employer elect to come after you. The best way to protect your friends is to avoid oversharing. We were shocked by the composition of some of our detractors. Some of our best friends in the business were disappointed in us, and some people we didn’t credit were our biggest champions. We are convinced that their reaction said a lot more about them than about us.
It is important to remember that change is disruptive, and people have varying capacities for it and reactions to it. Again, expect the unexpected and nothing surprises or catches you off guard. You’re rolling the dice with your business relationships when you break away, and while it makes sense to expect 6s, 7s, and 8s, occasionally, you roll boxcars or snake eyes. If at any point you feel emotionally spent by the drama, just step back and think in the long term.
One of the things we did to prepare for our move was to survey advisors who had paved the way before us. In a way, we were requesting from them what we’re accomplishing for you through this book: equipping you for a substantial shift in your professional journey that is bound to be both tactically and emotionally challenging, potentially leading to financial instability or, at the very least, a phase of uncertainty. We took their advice, and that made all the difference to us and has layered on our experience, which we hope will accrue to your benefit and many more traveling the same path. It seems dangerous to throw a bomb on fourth and one at your own 30-yard line, but less so if you know the opposing team is planning a safety blitz and your receivers will be one-on-one with their cornerbacks.
Departing from the parent company and venturing independently evoke apprehension in every business sector, whether within an advertising agency, an accounting firm, or a plumbing supply store. Even in the best of circumstances where the interpersonal issues are manageable, the laws are silent, and no employment contract presents barriers to departure, it is a leap off a cliff into the unknown. Being an entrepreneur is not for the weak-minded, no matter the field. Everyone who has ever started their own business can regale us with tales of woe and document a litany of stumbling blocks they had to overcome with grit, perseverance, and faith. They had to learn not just their trade but also how to market their service or product, manage an office, handle a payroll, lead employees, build a culture, select vendors, negotiate deals, and so on.
Throw into the bouillabaisse the bitter ingredients of ethical conflicts, war over clients, innuendos about your character and performance, and a counteroffensive from the former team to prevent the transference of customers, which significantly ups the ante, literally. There is a much greater down payment, or initial investment, not just financially but also psychically, to leaving a warehouse or insurance company than to starting a new construction company, an auto repair shop, or an ophthalmologist’s office.
We asked those before us what we could do to make that first year as pain-free as possible. How could we knock down some speed bumps they had ridden over? We heard a lot of what you have read in this book. Many of the tips, large and small, that we have offered you owe their provenance to the thirty to forty independent advisors we conferred with before we went out on our own. We asked them about the worst thing that happened to them and how we might secure the shark repellent for that. We heard the stories and thought we could get through it.
And then, the worst thing happened to Carmine.
The company sued him when two other advisors determined their lot would be improved working with an independent firm. As we have mentioned, big businesses often engage in strangulation by litigation against small businesses. It doesn’t matter whether the lawsuit is legitimate or who will ultimately prevail in a court case; what matters is the cost of litigation for the small firm. Often, even winning the case in court could be fatal because the legal fees would drown the enterprise. That is precisely what happened to Carmine, who settled to avoid escalating legal costs. Here is his perspective:
I wouldn’t change a thing about it because I gained three important and positive benefits:
1. If I had taken the money I spent on this and went to every “self-help” seminar out there, it still would not have given me 10 percent of the mental toughness I gained.
2. If this large insurance company was so upset about me leaving and encouraging others to go as well, it confirmed that I was on the right track because they represent what I believe is wrong with our industry.
3. It built my credibility. I survived the worst-case scenario and thrived through it! I could have avoided the whole thing by not allowing the two other advisors to accompany me. That company coming after me was one of the best things that could have happened to me.
It’s a small victory for me that my settlement didn’t cover their costs, and over the next two years, I more than made up for it. I’m now much better off financially and my life is much better. Now when I go on vacation with my family, I am totally present for my wife and kids.
One last thing we asked our advisor friends: What was their biggest regret about making the move? Their answers were unanimous: that they should have done it sooner. Despite all the landmines, every one of them felt they had made the right move—so much so that they wondered what had taken them so long. All of them were happier as independent advisors than working for the big firms. They all felt they were delivering superior service to their clients. Sure, the first six months were a grind, but the struggle was noble and helped them build a more resilient practice.
Now, add us to the list. That would be our answer today. We both stewed over the question of whether, and then how, to leave for months. We lived in a perpetual state of bad emotional weather and ill wind. When we finally pulled the trigger, it was as rigorous a process as we expected. And it didn’t take long for the skies to clear and sunshine to pour into our lives.
So, have you made your decision? Can you do this now that you know more about what to expect? If so, here are some final pieces of advice because—take it from us—the path you’ll be taking and the decisions you’ll be making will be based on emotion more than anything else, even money.
In the immediate aftermath of your break from the mothership, there will be a whirlwind of activity. Kiss your partner and kids’ goodbye for the next month, and bring a toothbrush and change of clothes to the office. With all there is to overcome, it’s a sprint to the starting line. Consider this arithmetic: you will work twenty-five hours—eight days a week, ten times as hard as before, for a total work output of 431.6 Blonskinos. (We just made up that unit of measurement but are quite pleased with it. One Blonskino equals the amount of work you would ordinarily do in each period.)
In that month, you will open an office, purchase computers and software, integrate all your systems, make your announcement calls, invite new clients to your new firm, hire staff, meet with everyone you can, engage in 192 phone calls with your lawyer, and much more. It’s a mad, emotional rush to survive in those first thirty days—and it’s totally unsustainable.
During this time, of course, you will need the support of your partner, if that’s applicable because if they aren’t wrangling the kids while you’re away, no one is. You’ll need the forbearance of your friends and other family members, whose texts and phone calls will go unanswered. You might as well record a voicemail saying, “If you’re a friend, family member, or my significant other, and you don’t have an account with me, I can’t talk to you this month. I’ll try to fit you in next month.”
Things do slow down over the next sixty days because they must. No one can run full speed indefinitely. There are still quadrillions of things to do, but they’re not all a top priority anymore. You have switched from dead sprint to marathon mode. Settle into a rhythm, breathe, and resume human interaction with those small people with early bedtimes who have moved into your home.
And now here’s some excellent news.
After ninety days, the urgency is gone, and you’ve resumed life’s normal pace. In fact, at this same spot on our journeys, independently (indeed, we didn’t even know each other yet) and on opposite sides of the country, we both did the same thing: we took time off. We did it in different ways—Carmine took a vacation with his wife, and Daren chilled at home—but we got away and recharged in both cases. It was evident that we had crossed the Rubicon in better shape than we had imagined and had begun the process of operating successful businesses.
One thing does change, though: you suddenly have so much more time for prospecting, networking, and client contact. You’ve shifted from retention mode to growth mode like before. Why? It now strikes you with clarity how excessively you had been inundated with meaningless paperwork tailored to appease brokerage compliance gods to protect the brokerage from you—that’s right, you—when regulators come knocking brokerages are careful to lay the footwork, so that if the music stops, they can point the finger at you. If you listened to nothing else, we have said, ponder on that one.
Now, the need for initiative has replaced the need for permission—in triplicate. You’re no longer playing Twister with your conflicts of interest and documenting all the ways in which you did not break the law or company policy or all the ways you did fulfill company CYA requirements. You’re simply acting in what you consider the best interest of your clients. The ethical tightrope and all the accompanying documentation are gone. Being a fiduciary is freeing.
Here’s an example of the tight controls our former employers clamped on us. When Daren joined his previous firm, they agreed to allow him to continue doing leadership training on a limited basis, as he had done earlier in his career. Eight months into his employment, they revoked that agreement. There was nothing Daren could do about the bait and switch. They claimed they didn’t want him to get distracted. More likely, the reasoning was more of a compliance issue. Now, we do whatever we think is good for business, such as leadership training, or whatever we think is simply good, like philanthropic activities.
We know you think this is all just more hyperbole, but you can’t overestimate how much of your time at the big firm is consumed with business tracking paperwork to protect the brokerage from the broker rather than to serve clients. The brokerage’s #1 priority is to avoid trouble, like a lawsuit, that might clog the profit-production machine. Once you break away, all the irrelevant minutia dissipates. In our shops, we do quarterly check-ins with our teams to keep them accountable; otherwise, we leave them alone to make good decisions.
That said, freedom can be dangerous. Freedom overload is real for those lacking the intrinsic discipline to reign themselves in, structure their time, and focus on productivity. Some advisors who go independent lose their business mindset because nothing extrinsic forces them to respect their business 8–5 every day. Daren knows one advisor who started working from home and allowed his personal life to bleed into his professional life. His wife tasked him with daytime kid management since he was home, blurring the lines between family and work and draining his time spent on the business. Not surprisingly, his business began dwindling. Don’t get us wrong, families are by far our most important focus, but if you want to build and grow a business, nothing circumvents focused time working on the business.
We have no illusions that this book is not for every financial advisor; we’re confident that two-thirds of the industry will have no use for it. Advisors who lack the innate desire to achieve won’t be interested in leaving the nest. Advisors who love recognition, the leaderboard, the trophies, the perks, and those who need the security of the corporate womb, they’re not going anywhere. They will follow the company rules, make a good living, collect their gold watch from Behemoth Conglomerate Inc., and retire happily.
If you’re like us, you’re the other third, driven to provide exceptional service to your clients, remain on the cutting edge of knowledge, grow your book strategically, and earn ever more for your increasing expertise; this is for you. Though the journey may be tough at the outset, the rewards will enrich your entire career ahead.
As a final thought, don’t forget to enjoy the journey. The only truly precious commodity is time. The time you have on this Earth to make an impact and perhaps change it for the better. Should you choose the road to independence, remember to sit back and appreciate the moments. Your life will be full of people to talk to and things to do. Take a pause and be grateful.
The path to success is not easy, but the rewards of perseverance are immeasurable.
—ROY T. BENNETT