A How-To Guide for Opening Your Own Wealth Management Firm

Illustration: CDR/Bloomberg Markets

Since 2007, only one segment of the wealth management industry has boosted its market share every year: independent advisory firms. They’ve more than doubled their assets in that time, overseeing about $2.7 trillion as of 2014. And there’s room for growth. According to an estimate by Boston Consulting Group, a total of $46 trillion in private wealth is up for grabs in the U.S. We asked several independent investment advisers, many of them former brokers, about setting out on their own. Here’s their advice.  

Illustration: CDR/Bloomberg Markets

Don’t get sued.
When Hugh Anderson was plotting his exit from Merrill Lynch in 2012, he didn’t even tell his own children. He was trying to meticulously follow broker protocol rules, which govern how to leave a firm without getting sued. If you’re subject to them, don’t tell any clients about your new business until after you’ve resigned. (And when you do quit, there’s a limited amount of customer information you can take, such as phone numbers and e-mail addresses.) Also, you can’t use company time to plan your departure, says Anderson, who’s now managing director of HighTower Las Vegas. So keep your weekends, early mornings, and evenings free.

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Enlist professional help.
A cottage industry has emerged to help advisers pry themselves free. Firms such as Dynasty Financial Partners, Focus Financial Partners, HighTower Advisors (which includes firms such as Anderson’s), and Tru Independence can handle details that many brokers are clueless about: getting a municipal license to run a business, setting up compliance procedures, filing necessary regulatory documents, and plugging into custodians that hold assets. They can also help keep your move covert by, say, finding office space and negotiating your lease. Just do your homework before picking one, says David J. La Placa, who, with Dynasty’s assistance, left Deutsche Bank with his team in June to start San Francisco–based Intellectus Partners. The firms vary in how they charge for services (via a percentage of assets or a consulting fee) and may even want an ownership stake in your new firm. Some of their business models may fit better or worse, depending on whether you plan to charge only annual fees on assets or charge commissions on certain investments.

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Embrace technology.
Several shops have developed software in recent years geared toward independent advisers. Some of it matches or exceeds what brokers have at large banking and trading firms, says Colin Williams, who, with help from Tru Independence, left Morgan Stanley with four teammates to start Encompass Wealth Advisors in Portland, Oregon, last year. He and his partners picked a trading and reporting tool made by Chicago-based Envestnet because it lets them customize model portfolios for clients, see hypothetical changes to a portfolio, and easily rebalance investments. La Placa went with Mountain View, California-based Addepar, whose software allows you to see exposure to a given asset class across an entire portfolio, updates the value of clients’ investments in real time, and generates comprehensive reports at the push of a button.

Illustration: CDR/Bloomberg Markets

Hone the sales pitch.
If you follow broker protocol rules, your exit should come as a shock to clients. Most teams head straight to their new office after resigning and begin calling clients to persuade them to move their money to the new firm. Clients typically want to know what you’ll be able to deliver. “We talked about the future and taking our service to the next level of sophistication,” Anderson says. Those who agree to follow you must sign documents to shift accounts. Have overnight mail packages with express return envelopes and transfer paperwork ready to go on day one of your new firm, says Matthew Presjak of Encompass. And remember that once you quit, your old company will probably divvy your clients quickly to other brokers, who will solicit them too, he says.

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Don’t forget the details.
While your firm’s name and logo are important, the website is crucial. “It’s everybody’s gut check on you,” says Michelle Smith, chief executive officer of Source Financial Advisors. You’ll also want to think about how to divide your equity among your partners. If you’re defecting as a team, create an operating agreement among partners before you start. It should outline each owner’s equity stake and contingencies for when someone retires or wants to sell shares, or if there’s an ethical breach, says Williams of Encompass. Some of the terms you hope you’ll never have to enforce, but it’s prudent to have them in place, he says.

This story appears in the September issue of Bloomberg Markets magazine.

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