Why I Left My Broker-Dealer

As a financial advisor working at a big Broker-Dealer (BD), I had long considered breaking away and becoming an independent advisor. There were many reasons why I wanted to make this move, and why it has made me a better advisor, a better dad, and opened the possibility that I live the life I want to live on my terms. I don’t regret my time and I learned a lot while I was there, but eventually I reached a point where I knew it was time to branch out and do something on my own. Below are some of the key factors that finally convinced me to leave my stable salary behind to become an independent financial advisor.

Better Quality of Life

According to the 2020 TD Ameritrade Break Away to Independence Survey, most advisors who moved to the independent RIA channel reported a better quality of life, an easier transition, a positive impact on their bottom line, and better technology than expected. I have only a month in and while a lot of my focus now is on attracting clients, I have found this to be 100% true. My stress levels are down, sleep is up, and I don’t come home in a bad mood a few times a week. 

I set my own schedule which means that every Tuesday/Thursday I am done no later than 4:30 so I can be on time for my son’s track meets. I can start work in the morning at 6am and not feel like I must stay in the office until 5pm to conform to the office standards. I don’t have a 40-minute commute that eats away from family time every day. If I want to go for a walk at 1pm I just do it.

I want to let you in on a little secret too, I didn’t love every client I worked with. Some were not particularly nice to me or the rest of the team. Others, clients weren’t always reliable. It was like pulling teeth to get the data needed for a financial plan, to get documents signed, and some would go through the planning process and never implement a single recommendation no matter how good the plan. It’s easy to get down when you feel like you spend your whole day trying to help someone who is not nearly as invested in helping themselves for whatever reason. I am in a position now where I can truly choose who I work with.

Choosing my own clients

I will admit after becoming an advisor I did originally want my niche to be working with pre-retirees and retirees sixty or older. That’s where you can make a lot of money. A 1% fee for managing assets is a pretty standard fee. When you are working with people who are 60+ who have been saving their entire lives it is not unusual to have a million dollars or more saved. That translates into a $10,000 annual fee for every million dollars managed which really helps the old bank account.

It sounds ideal, you make a good amount of money and can help clients through one of the more challenging financial times in their lives. They are dealing with Social Security, Medicare, required minimum distributions, estate planning, tax planning, and retirement strategies that need to be carefully considered for a successful retirement.

I am not saying it was not fulfilling work, but as I was exposed to a broader range of clients, I found that working with older clients was never my favorite part of the job. I was drawn to working with younger clients, particularly those who were self-employed or owned their own businesses. There was more to discuss in every meeting as we dug into cash flow and profit and tax strategies and other items that were constantly changing as they grew their income, their families, and their lives.

Working with younger clients required a different and potentially less profitable approach to billing. The main source of revenue for the firm was the fees earned for managing substantial amounts of assets and most younger clients don’t have enough money to manage to earn the fees the firm was looking to make per client. I was never discouraged when I brought in younger clients, but my bonus structure and opportunities for pay increases were tied to how much money I could bring in and manage.

Planning is always included.

At my BD they offered planning and I passionately believe it was the focus for some of the advisors, but it was still optional and was an additional fee. I believe that to manage someone’s investments it’s critical to start with a comprehensive financial plan. It’s not easy to make recommendations on how to invest someone’s life savings without understanding the client’s full financial life.  This includes understanding their family dynamic, debt, risk management, estate plan, and possibly the most important aspect is their goals and values.

Gathering this information isn’t easy and is not a quick process. You must ask the right questions but before you can do this you need to start to build trust. You need to have the goals conversation with them as a starting point, but just know that those first conversations you probably are not getting a complete answer to many of your questions. There is shame, fear, and just a general lack of awareness that an advisor needs to work through to allow for the open honest conversations you need to have to be an effective planner. It’s immersing yourself in their life and in their challenges to try to truly understand what they value. If you want to do it right, it’s not just meeting every six months to go over investment performance and whatever random fear, question, or trending news item that pops up the day of the meeting.

Working for a practice that already had hundreds of clients that needed service by only two advisors (one being me) it was hard to give the time and attention to planning that I think is needed to each client. We also had more than 30% of our client base that didn’t want to participate in planning whether that was because of cost, perceived lack of value, or other reasons.

Now, I get to structure my business, so that planning is not optional. I believe the financial planning and advice provided is the most important job an advisor has so I require all clients I take on to have a financial plan.

I am always on the client’s side.

Another big reason I chose to go independent was to become a fiduciary. This means I can always put the client’s needs first and act in their best interests without a conflict of interest. I don’t make sales commissions on products sold, and I now have the freedom to offer my clients the exact solutions they need, without being limited by the investment options available at the BD.

Even when I was 100% certain the solution being offered was the best option for my client, it was still hard to not second guess myself and my motivations behind the recommendations. Was I subconsciously offering an insurance policy or a mutual fund because it paid me a little bit more? I’ve never been a person to do anything just for more money, but lying in bed at night it was hard to quiet that voice in my head sometimes asking if what I did was truly best for the client or if it was best for me.

Low overhead, lower fees

As a fiduciary fee-only advisor with extremely low overhead, I can focus on planning and building relationships with my clients, rather than being driven by sales targets. Given that I have an office at home, I can run my firm including all necessary technology for around $800 dollars a month. I may need to get an office and hire staff and do other things that will raise this figure eventually, but I can choose to keep it low and have full control over what I spend.

What this means for my clients is that I can offer lower fees and have a smaller number of clients because I need a lot less money to come in each month just to keep the doors open. I can spend more time with each individual client to provide better service and do the type of in-depth planning I have always wanted to do without being overwhelmed by tasks and meetings.

Clients without hundreds of thousands of dollars had to pay annual account fees if they did not meet the necessary minimum dollar amount to have them waived. I wanted to work with younger, less affluent clients and to work with me they would have to pay between $75 and $100 annually just to have the account open. This didn’t even include the cost of financial planning. This always rubbed me the wrong way, and if I am being honest made me feel a little guilty.

Being able to offer lower fees also works well with the clients I want to serve. I could find a custodian with low to no account and transaction fees allowing me to use less expensive more efficient solutions.

No more mutual funds

This is an exaggeration of course. There are many good mutual funds and many scenarios where they fit best but in most of the portfolios I design I use exclusively exchange traded funds (ETFs).

ETFs tend to have a lower expense ratio; with the ones I prefer in most cases being under .1% such as the passive index funds offered by Vanguard or Blackrock. Beating the market can be ridiculously hard to do, and when you add the fees for C share mutual funds that are often over 1% it gets even harder. For younger clients who were just getting started, saving money is the hardest and most important part of the process. You won’t have advanced growth strategies in place so keeping expenses low is critical.

The problem with ETFs at my BD for younger clients was that in brokerage accounts you had a $50+ transaction fee when you bought an ETF, as compared to the much lower fees to buy mutual funds. When you are only contributing a couple hundred dollars at a time having an extensive portion of that wiped out just to purchase the ETF is a big blow.

Lowering the compliance burden

If you asked 100 financial planners, I bet less than one would say that they are excited about the demand’s compliance puts on your time and energy every day. In the BD world compliance rules are created for the lowest common denominator. The rules must be stricter because the BD is responsible for the actions of the hundreds of advisors at the firm, so they need to have the necessary checks and balances in place to ensure that compliance rules are not broken willingly or unknowingly.

I don’t have a problem with compliance. Having to provide documentation that justifies every recommendation you make protects both the client and the advisor. If I recommend someone increases risk in their investment portfolio or add additional insurance, I should have an incredibly good reason for it. I also agree that I shouldn’t be able to market and attract clients using confusing or misleading information. These are all important standards to verify and uphold.

My problem was the lack of efficiency that comes from being in a big firm. I wanted to write more, post more on social media and create educational videos that don’t take multiple weeks and many many rewrites to get approved by the compliance team. I wanted the freedom to be sitting at my son’s basketball game and think of something I think could help others and be able to tweet or create a Facebook post that goes out right away. I understand why the systems were put in place but as my own chief compliance officer I can remain compliant with regulations and still market efficiently.

There is nothing wrong with working for a big BD. The resources, training, and investment options are hard to match as a smaller RIA. I enjoyed my time working with the BD and loved my coworkers. I had a really tough time leaving but knew that to continue to grow and improve as a financial planner I had to move on. It was a risk and still is. I am responsible for compliance, investment management, planning, and everything else a business owner must handle day to day all while not drawing a consistent paycheck. I knew that to build the life I wanted for me and my family though I had to take that leap and 2 months after leaving I am glad I did.