So, you want to be an independent advisor?

By Todd Humber | November 16, 2022 | Last updated on November 16, 2022
4 min read

In the spring of 2021, Scott Sather’s phone was ringing off the hook.

It was the height of the pandemic, and the Regina-based financial advisor was approaching his 14th anniversary with a big bank brokerage. It wasn’t just clients reaching out, but also competitors looking to lure him away.

He was ready to make a move.

“I got tired of the constant noise, and trying different tech and different marketing things,” he said. “I got tired of over 50 cents per dollar that I had coming in going to the big bank instead.”

He decided to set out on his own, founding Awaken Wealth Management and taking on the role of president and financial planner.

In May 2021, he handed his resignation to his branch manager. It was Friday before the long weekend, which he admitted was less than ideal timing. It kicked off a “mad dash” to reach out to his clients to retain their business.

In those calls, first and foremost, clients want reassurance their money is safe. Second, they’ll ask if you’re OK, Sather said. And then the balance of the conversation is focused on convincing them to follow you.

At the same time, his former employer was contacting his clients to discuss options, he said. In his experience, many clients are loyal to the bank, not individual advisors.

Bank clients “are used to the revolving door,” Sather said. “You have clients who have been around long enough that they’re used to that experience. It’s not a big deal [for them].”

When the dust settled, he retained about 50% of his clients representing 70% of his assets under management. That’s a fairly typical number, said Jeff Gans, managing partner with Purpose Advisor Solutions in Toronto, who pegged the average AUM retention at 75% to 85% when going independent.

Conversations with clients should be focused on the vision for the practice, and not on why you’re leaving, Gans said.

“If you’ve really spent the time to define your value proposition, and if you communicate that to your clients, your clients want to see you succeed,” he said. “Most clients will be excited for you.”

But striking out on your own isn’t a panacea, he said. There are risks and headaches. One of the big ones is the demands on your time: you won’t have the luxury of spending all of it on client management anymore.

“Think about all the people supporting you. The modern practice today is not just about one practitioner. It’s a team of people, and you are now the CEO of a company. You have to define the roles and responsibilities for those people, and you have to inspire those people,” Gans said.

Going solo isn’t the only option for advisors looking to leave. Partnering with like-minded professionals and creating a small firm can spread the workload. Still, responsibilities suddenly include setting up real estate, marketing, payroll and benefits, Gans said. The first 120 days to 150 days are a scramble.

Compliance is an area where many advisors need help. “We recommend having someone on the team who focuses on that,” he said. “It’s important that, as the leader of the business, you take strong oversight.”

The biggest reason advisors fail as independents is not being able to make investments in the business around marketing, technology and operations, Gans said.

“If you end up being the person trying to do everything, you can’t spend the time on growing your business,” he said. “That’s the number one issue.”

Bruce Lindsay, senior wealth partner with OceanFront Wealth Inc. in Vancouver, said advisors need to ask themselves why they want to make a move. Money might be the obvious answer, but it’s not the right one in his books.

Independence, autonomy and control of both time and finances are the real perks, he said.

“A lot of the people who have branched out on their own are control freaks. That’s both good and bad,” Lindsay said. He likes the freedom to take the business where it makes sense, as opposed to working for a big bank with “basically zero input.”

“I’m a big believer in taking time off to rejuvenate. When my kids were younger, if I wanted to take the month of August off, I took the month of August off,” he said. “As an employee of a big firm, that’s not going to happen.”

How big should your book of business be to consider going independent? Sather said you could start with as low as $30 million to $50 million in AUM.

“I think there are a lot of things at play — one being the independent firm they’re using and the grid and fees they face,” Sather said. “Another is the amount of technology being used to bring in efficiencies to the practice and likely the number of staff.”

The number could be in the $250 million to $500 million range if you’re building out and scaling a portfolio management business, Gans said. That could be accomplished with one large book of business, or by teaming up with other independent-minded advisors to build a new practice to get to that number.

The right AUM threshold can also vary based on location, Gans said. Toronto, for example, is more expensive than Saskatchewan. Plus, an advisor may have other revenue streams, such as insurance, that might make a lower number palatable.

And, of course, the threshold depends on desired compensation. “Do you want to make $75,000 a year or $500,000 a year?” he said.

For Lindsay, an advisor’s registration also matters. A securities or mutual fund advisor could probably go independent with $50 million, he said, but an investment counsellor would want to have at least $300 million in AUM.

Todd Humber

Todd Humber is an award-winning journalist who has reported on workplace, HR, employment, legal and occupational safety issues for more than 20 years.