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A division of InvestmentNews

VP/PublisherSuzanne Siracuse (212) 210-0715 [email protected] Advertising Sales DirectorCharles J. Dixson (212) 210-0152 [email protected] Marketing DirectorTracy David (212) 210-0417 [email protected] EditorialGaynor CommunicationsDesignReuter & Associates

Website www.InvestmentNews.com

ContentsThe Adviser Experience 3Panelists share their experience, advice for others

considering the move to independence

What Are the Models? 7�ere are many ways to become

an independent �nancial adviser

Pick Your Partner 9Take the time to �nd a broker-dealer

or custodian that will work with you

The Letter of the Law 10Understanding legal issues can make

path to independence smoother

�e content and agenda of this supplement are not created, written or produced by the editors of InvestmentNews, and do not represent the views or opinions of the publication or its parent company, Crain Communications Inc.

“You’re leaving so much on the table by not going independent.” Greg Berg

“It’s not a cakewalk, but it’s worth it.” Red Goldstein

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Doug SwopePrincipal, Managing Director

Chris DautrichDirector, Client Relations

Jack Swope Principal, Senior Director

“We moved out on our own to provide more personalized service to our clients and build value in our own fi rm. It was the best move we’ve ever made.”

Looking to launch an independent fi rm?

Call 800.218.1222

or visit fiws.fidelity.com

Stillwater Capital Advisors is an independent company and is not affi liated with Fidelity Investments. The experience of this client may not be representative of the experience of all clients and is not indicative of future success. © 2010 FMR LLC. All rights reserved. The registered trademarks and service marks appearing herein are the property of FMR LLC.Clearing, custody, or other brokerage services may be provided by National Financial Services LLC, or Fidelity Brokerage Services LLC, Members NYSE, SIPC. 553037.1.0

— Doug Swope Stillwater Capital Advisors

Fidelity Institutional Wealth Services gives large, successful advisor teams the high-caliber support

they require to form their own practice. Throughout your transition and beyond, we’ll continually

invest in new ways to help you stay at the forefront of your industry and serve your clients’ needs.

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�ere are almost as many ways to go inde-pendent as there are advisers looking to do so. But no matter what model an adviser chooses, going independent involves a lot of thinking about the kind of �rm you want to build and the best way to serve your clients, according to a panel of advisers who have made the move.

Regardless of the business model you choose, there are several steps to achiev-ing independence, said the advisers, who shared their experience with attendees at the Chicago session of the InvestmentNews Going Independent Workshop Series. �e third annual series was held June 14 in Los Angeles, June 16 in Chicago and June 18 in Stamford, Conn.

�e four advisers who made up the Chi-cago panel were Gregory J. Berg, a senior �nancial adviser and CRPC® with Ameri-prise Financial in St. Charles, Ill.; Red Goldstein, CRPC®, a partner in Teak Tree Capital in Fort Worth, Texas; David Han-sen, president and chief executive o4cer of Yellowstone Partners Wealth Management in Idaho Falls, Idaho; and Bennett Marks, president and chief investment o4cer of Marks Group Wealth Management in Minnetonka, Minn.

All four advisers follow a hybrid model, and all are relatively new to independence. Berg joined Ameriprise about a year ago, af-ter being with a major wirehouse. Goldstein and Marks also came from wirehouses, and Hansen became a registered investment ad-viser after his �rm made a major acquisition.

Before they made the move, the advisers all were concerned about whether their cli-ents would follow them when they became independent. However, what they discov-ered was that almost all their clients were loyal to them rather than to the wirehouse or broker-dealer. In the end, all the panelists retained from 90% to 99% of their clients.

Importance of a Plan�e key to such a successful transition is to have a plan, the panelists agreed. Each of the advisers on the panel spent at least six months to a year planning for his eventual departure. By the time they made the move, they were clear about what they wanted to do and had considered many of the potential problems.

�ey started the process with an exami-nation of why they wanted to leave their former �rms. For the advisers who were with wirehouses, the motivation included a growing dissatisfaction with the wirehouse on their part and on the part of their clients. “�e tarnished reputation of the Wall Street �rms was really more of an inhibitor than a help” when dealing with clients, Marks explained.

Next, they considered the form they wanted their new enterprise to take. Berg, for example, chose to work with Ameriprise, which meant he had relatively low startup costs and was able to move into an existing o4ce.

�e other three advisers opened their

own o4ces, which involved �nding space, equipment and sta@. Goldstein said that, although most broker-dealer and custo-dial �rms that an independent adviser can choose to work with o@er �nancial assistance for startup costs, he and his partners decided to fund the upfront costs themselves.

�e startup costs for the �rm he and his partners formed came to about $100,000, Goldstein said. �ey employed some creative �nancing options, including tak-ing advantage of no-interest �nancing on computers from Best Buy. �ey left their former �rm in April, and they did not get a check from their new �rm until July 1. By October, they were back to at least their former compensation level, he said, but he acknowledged that things were tight for those few months.

“But if you’ve got some money in your pocket and you are willing to look at your spouse and kids and say, ‘�ere are not go-ing to be any extras for the next 90 to 120 days,’ you might be able to fund it yourself,” he said.

The Adviser ExperiencePanelists share their experience, advice for others considering the move to independence

Advisers on the panel in Stamford, Conn., o�er insight on independence.

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Finding Expert HelpAll the advisers encouraged attendees con-sidering making a move to take advantage of the expertise o�ered by the broker-dealer or custodian they choose as a partner. “�e custodian or broker-dealer is very motivated to make sure you have a successful transition, and they’ve done it before,” Marks said.

�ey also urged attendees not to try to do everything themselves. “You give �nan-cial advice for a living,” Marks reminded the advisers at the workshop. Dealing with clients is the expertise of most advisers; they are not accountants or lawyers or mar-keting experts. And, the good news is that they don’t have to be.

�e panelists urged advisers to take the time up front to �nd good partners to handle aspects of making the transition and running their business that they themselves don’t want to or aren’t equipped to handle. You should start with �nding a broker-dealer or custodian that understands what you want to do and is able to work with you to help you create the business you want, they said. (See story on page 9.)

In addition to a broker-dealer or custodi-an, you need other strategic partners. �ese can include lawyers, accountants, technical people and marketing �rms, among others. If you pick the right partners at the start, you will end up spending less time on admin-istrative tasks in the long run, the panelists agreed.

Hansen said that although he spent a lot of time on administrative issues at the begin-ning, “Once it gets up and running, you spend very little time on it.”

Marks added, “My days are maybe an hour or two longer, but it’s a labor of love now.”

Reaction of Clients�e panel also told attendees that they probably would be pleasantly surprised by the reaction of their clients to a move to independence. In fact, they said, the recent problems in the �nancial services industry have made many clients nervous about work-ing with a large �rm and more accepting of an independent adviser.

“Clients take it very well. �ey respect you for making a change like that,” Berg said. “�ey respect that you want to work for them solely.”

Hansen said that the biggest issue was having clients �ll out new paperwork for the new �rm. But even that went smoothly, he said, adding, “Your clients don’t really care, as long as they’re working with you.”

Marks noted that his timing was a little inconvenient, because he went indepen-

dent in November 2008. “�ere was a lot of anxiety, but in the end it worked in our favor because we were doing something proactive,” he said. “Ultimately, your clients do business with you and not with the logo on the door.”

�e panel also emphasized that it is es-sential to handle leaving your former �rm properly in order to avoid legal complica-tions, especially if you are leaving a wire-house. �ey were pleasantly surprised by the overall ease of the process, they said.

Goldstein joked that his former �rm waited “a good 15 minutes” before calling his clients, and Hansen said his broker-dealer was “aggressive about trying to keep their clients.”

But in general, they each had an experi-ence similar to that reported by Marks, who said, “Really, I had no retaliation (from the wirehouse). I had and still have a great relationship with the branch manager of the local o&ce.”

�e key, they agree, was that they took the proper steps when leaving their former �rms, and they did not try to take more than they were entitled to take. Goldstein even registered his new �rm under the Protocol for Broker Recruiting, an agreement that originated in 2004 to make it easier for wirehouse advisers to leave.

When you leave, take only what you are allowed to take under the Protocol: client names, email addresses and telephone num-bers. Don’t try to leave with anything more.

“Any transition is going to be di�cult, but if you tee it up right, you’ll wonder why you waited.” David Hansen

“Ultimately, your clients do business with you and not the logo on the door.” Bennett Marks

In Stamford, adviser panelists share their experience with workshop attendees.

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10 Steps to IndependenceAdviser panelists and other experts who participated in the InvestmentNews Going Independent Workshop Series suggested 10 steps for advisers who want to become independent:

1 Consider your motivation. Why do you want to leave your current situation? Are you looking for more autonomy, more control, more money? Do you want to be able to

serve your clients in ways you cannot now? Do you want to build your own �rm that you can sell or pass on?

2 Think about your clients. What do they need from you? How can you best serve them? How likely are they to fol-low you to your own �rm?

3 Think about your personal skills. What do you like to do, and what are you good at? What don’t you like to do, and could you hire someone to do that? Could you structure

your business so that you spend most of the time doing what you like to do and what you’re good at?

4 Find a model. �ere are many possible ways you can struc-ture your business. Considering your needs and the needs of your clients, decide what model is best for you.

5 Choose a custodian or broker-dealer. Find a �rm that under-stands and can support the kind of business you want to build.

6 Make a plan. Create a timeline for making the move, including setting up the corporate structure, �nding oce space, getting technology, hiring people, setting up a web-

site, and anything else you need to do.

7 Prepare to leave your wirehouse or broker-dealer. Talk to a legal expert who has experience in handling this transition. Understand what you can and cannot take when you leave.

8 Inform your wirehouse or broker-dealer, and leave your office. Be sure that you are ready to do business in your own �rm before you leave your former �rm.

9 Contact your clients. Although you cannot tell clients you are leaving before you go, you can and should start contacting them as soon as you leave.

10 Do what you love. If you have followed the steps properly, you should have a practice that allows you to serve your clients in the way that works best for you

and for them.

“And don’t try to do this without either going to or being a Protocol �rm,” Gold-stein said.

You cannot tell your clients you are leaving the �rm until you actually resign, although panelists noted that you can suggest to your clients that you are un-happy with the �rm. And once you leave, be sure to contact your clients personally to tell them of your move.

“Once we made the move, we got on the phone and got in the car, and went to see people,” Goldstein said.

Hit the Ground RunningIt is very important to be ready to start work as soon as you leave your former �rm, so that you can demonstrate to your clients that your new �rm is viable and ready to serve

them. “When we opened our door on April 24, 2009, we were ready,” Goldstein said

Marks agreed, adding, “Our logo and our marketing and our website were all ready to go.”

�e adviser panelists acknowledged that going independent can be unsettling or even scary. “Anyone who tells you a transition is going to be smooth as silk is lying to you,” Hansen said.

“It’s a strange feeling to walk out the door after you’ve been with a �rm for a decade,” Marks agreed. “You feel a little bit naked.”

But to a man, the panelists said that making the transition is worth it. �ey reported pro�ts after expenses in the mid-60% to mid-70% range. “If you do this right, your income should be considerably

higher than it would have been at a wire-house,” Hansen said.

Berg added, “You’re leaving so much on the table by not going independent.”

�at applies not only to increased income, but also to the ability to build a company with equity, the panelists said. “Going independent, you build something that’s going to be a whole lot bigger at the other end,” Goldstein said.

Hansen added, “Every time you add a new client, you get 100%.” Although you have to pay your expenses, you don’t have to share the client with a wirehouse or broker-dealer. “Any transition is going to be dicult, but if you tee it up right, you’ll wonder why you waited,” he said.

Goldstein agreed, saying, “It’s not a cakewalk, but it’s worth it.” •

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∆




By Spenser Segal, AIFA

Now more than ever, advisers who want to go independent have a myriad of choices. If there is a business model you’re looking for, it’s highly likely you can �nd it.

�is is good, because it means that there is a model to accommodate virtually any approach you want to take, from a hybrid model involving a scaled-back relationship with a broker-dealer to complete indepen-dence as an independent RIA (Registered Investment Adviser). However, it can be confusing and overwhelming as you attempt to navigate through the pros and cons of each model.

A good place to start is by asking yourself what you really want to accomplish, what you enjoy doing and what you are good at doing. Why do you want to leave a wirehouse or broker-dealer and go out on your own? Are you looking for more inde-pendence and more choices in managing your client’s money? Do you want to be able to o er more planning capabilities? Do you want to build a �rm that has value that you can sell or pass on?

Take a look at your current business, and what parts of it you would like to keep. If you have a lot of commission-based business, you will likely want to consider a hybrid approach that will require you to maintain a relationship with a broker-dealer. If you don’t have any commission business, or if you have so little that it is not worth the extra hassle to keep it, you might be bet-ter situated as an independent RIA.

Consider what you want to do within your new entity. Creating your own business involves all kinds of non-adviser skills such as marketing, accounting, human resources, technology, etc. You are creating a business, which is di erent than advising your clients. In order for your business to have intrinsic

value, it needs to be able to stand on its own, without you.

Before making a move, it is critical that you understand your own motivation and goals. You probably are motivated at least in part by dissatisfaction with your current situation, and understanding why you are unhappy is a good place to start. Especially now, with so many options for structuring your business, you have an opportunity to create the kind of business that will meet your needs.

At the same time, think about what your clients want, and how you can best serve them. What kind of assistance do they need in addition to investment advice? How do they like to interact with you? How can you structure your business in a way that adds client value?

A Look at the ModelsOnce you have thought about your own goals and expectations, and those of your clients, you can consider them in light of the independent adviser business models. �e business model you choose determines your licensing requirements, regulatory structure

and revenue sources, among other things.�e least complex model, which is also

the least independent, is to be a commis-sion-based registered representative for a broker-dealer or securities �rm. In this case, you make all your money from securities sales commissions. You are an employee of the broker-dealer or securities �rm, and you receive a W-2 tax form. �e broker-dealer handles compliance, and you utilize their marketing materials. You need a Series 7 license, and you are regulated under Finra. You might or might not hold an insurance license.

You also can be a commission-based registered representative who does fee-based business and commission-based business. In this case, you also are an employee of the broker-dealer �rm, and you receive a W-2. You must have a Series 7 license. Your secu-rities sales are regulated by Finra, and your fee-based business is regulated under the �rm’s SEC registration. �e �rm handles compliance and probably at least in�uences your marketing. You might or might not hold an insurance license.

You can be an independent registered representative for a broker-dealer or securi-ties �rm and, for the fee-based business that you conduct, have your own RIA �rm. In this model, you are not an employee of the broker-dealer, and you receive a W-9 tax form rather than a W-2. However, you still need a Series 7 license, and the broker-dealer still handles Finra compliance. You can do your fee-based business—and you are responsible for adhering to SEC regula-tions—either as part of the broker-dealer or on your own. You handle your own market-ing on the fee-based advisory business, and you might or might not hold an insurance license.

�e most independent option is to be a pure RIA. In this case, you don’t need a

What Are the Models?

Spenser Segal, AIFA

�ere are many ways to become an independent �nancial adviser

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Series 7 license because you don’t sell securi-ties or receive commissions. You also don’t have any Finra compliance concerns, but you handle any SEC compliance. You are an employee of your RIA �rm, and you don’t have an insurance license.

In addition to these models, there are other options as well, including joining an existing independent RIA. �e number of independent advisers continues to grow. If you intend to go the RIA route, there are some things you should know.

Understanding RegulationFirst, you will be regulated by either the SEC or the states. Under current law, RIAs come under SEC regulation once they have at least $25 million in assets under manage-ment, but that is likely to change, perhaps to $100 million. If you are not big enough to be under SEC regulation, you are regulated by the state (or states) where you conduct business. In general, you are held to a �duciary standard rather than the suitability standard to which registered reps are held. For example, RIAs must disclose to clients how the �rm/adviser is compensated.

As an RIA, you either can own your own �rm or join another RIA �rm as an IAR (investment adviser representative.) Technically, if you own your own �rm, you are an IAR of your RIA. As an RIA, you get a fee for selling advice. Virtually all RIAs, 97%, do portfolio management. Two-thirds do �nancial planning, 45% do estate planning, 22% do insurance services, and 19% do tax planning.

When you are considering what services to o�er, decide what services your clients re-quire and what service you want to provide. �ere is no better or worse model for service o�erings. �e best model is the one that works for you and your clients.

As an independent RIA, your �rm can be only you, or it can include many advisers working with you. �ere are advantages to each approach, although the most pro�table tend to be either small �rms or large �rms. Firms in the middle tend to have the cost structure of a larger �rm without the cor-responding level of revenues.

Startup ConsiderationsIf you want to create a large �rm, under-stand that you are building a business that involves more than just serving your clients. You need to decide on a business model, such as a corporation or an LLC, and take the necessary steps to set up that model. You need to �nd o�ce space, buy furniture, purchase computers, select software, and rent or buy a phone system. You need to �nd a broker-dealer or custodian to work with. You need to hire people, from o�ce and technical support to additional advisers. You are an entrepreneur and have all of the headaches (and rewards) of starting, run-ning and growing your own business.

�e good news is, you don’t have to do it all. You should decide what you like to do and are quali�ed to do, and then hire individuals or partner �rms to do the rest. In the long run, your time is more pro�t-ably spent serving your clients and building your business than trying to learn how to do things you don’t want to do anyway.

You can create a �rm with partners, which helps to spread around the startup costs and responsibilities. However, it takes more time to plan and set up a partnership because you have more people you have to make happy.

Many advisers are choosing to join exist-ing �rms where they can gain the bene�ts of being a �rm owner without the challenge of building the business from scratch. �e key to making a partnership successful is to ensure that all of the partners have a common set of values, de�ned operat-ing principles and a commitment to work

through whatever unanticipated issues emerge. You will want to engage competent legal counsel to create a well-structured and robust partnership agreement. However, even with the best agreement and plans, there will always be issues that come up that are not covered and need to be negotiated between the partners.

Whether you are moving to complete independence or a hybrid approach, you need a plan. As you begin your transition, you will �nd that it will not go exactly as you expect. �ings happen. But at least when you have a plan, you will know when you are deviating from that plan.

�e broker-dealer or custodian you choose usually can help you develop and stick to a plan. Most of these �rms have extensive experience in helping advisers manage the transition to greater indepen-dence. Like you, they have a vested interest in seeing you succeed, so take advantage of all the help they can o�er.

Going independent is complicated, but it does not have to be hard. Have a plan that breaks the process into several steps. Have competent resources supporting your transi-tion, and understand that things will not go according to plan, but at least you and your team will be prepared to deal with inevitable challenges that arise and �nd ways to get back on track. •

Spenser Segal is CEO of ActiFi™, a software and solutions company focused on delivering scalable business execution programs to the nancial services industry. For more informa-tion, visit www.acti .com.

Com

plex

ity

Independence

Independent Registered Repwith a mix of fee and commission

Employee commission-basedRegistered Rep

Fully Independent Adviserwith no securities license

Hybrid Adviser who owns RIAand holds Series 7 with B-D

Independent Adviserprimarily charging fees

Employee commission-basedRegistered Rep who charges fees

for some services

Adviser Business Model Options

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�e �rst part of going independent is to decide what you really want to do, accord-ing to the participants in the 2010 Going Independent Workshop Series. You should think about what you like to do, what you are good at doing, and what your clients need from you. �at allows you to structure the kind of independent advisory practice that is right for you.

Once you have decided on a direction, you need to �nd a partner to help you create the practice you envision. Just as there are many models, there are many �rms that can help you build and run your practice, and each of them has something unique to o(er.

Representatives of four of those �rms talked to advisers as part of the Going Independent Workshop. �e panelists in Chicago were Mike DiGirolamo, manag-ing director for Raymond James Investment Advisors Division; Matt Kelley, divisional vice president for Ameriprise Financial; Bill Morrissey, executive vice president-business development for LPL Financial; and Mike Romano, senior vice president-sales for Fidelity Institutional Wealth Services.

�e panelists agreed that it can be a huge step for advisers to go independent, especially for advisers coming from a wire-house environment in which the wirehouse handled everything from advertising to technology to compliance.

“Initially, advisers don’t know what they don’t know,” DiGirolamo said. �ey need help formulating the questions that will allow them to look for answers.

In particular, Morrissey said, many advisers going independent don’t know all the steps that are involved in setting up and running an independent business.

David Hansen, who was on the panel of independent advisers in Chicago, agreed. “What concerned me most was what I didn’t know,” said Hansen, who is president

and chief executive o:cer of Yellowstone Partners Wealth Management in Idaho Falls, Idaho.

�e �rst issue is to determine what you want. Do you want complete independence, and are you looking for a custodian for your clients’ money? Do you want a relationship with a broker-dealer that will allow you to continue to sell some securities and manage

your existing long-tail commission business?What services are important to you? Do

you want to be able to simply set up shop in an existing o:ce, or do you want help setting up your own o:ce? Do you need �nancing assistance? What about help with technology, compliance, marketing, etc.? Most �rms can provide as much or as little as you need in terms of support, the panel-ists said.

For example, Ameriprise advisers oper-ate under the Ameriprise banner, Kelley said. His �rm might be a good �t for an adviser who wants to take advantage of a well-known name and do relatively little in terms of setting up an o:ce and providing his own support.

Greg Berg, a senior �nancial adviser with Ameriprise in St. Charles, Ill., said

his move to being an Ameriprise adviser went very smoothly, and he found that the Ameriprise name was familiar to his clients, who liked the idea of working both with an adviser they know and with a �rm they have heard of.

At the other end of the spectrum, adviser Bennett Marks, president and chief investment o:cer of Marks Group Wealth Management in Minnetonka, Minn., chose to work with LPL Financial. He realized that the �rm would have very little name recognition among his clients, but he did not �nd that to be a problem. “Probably only about 5% of our clients during the transition asked questions about LPL,” he said. “More and more, clients want to re-ceive their �nancial advice from people who are local and people they know.”

�e advisers and the B-D �rms encour-aged advisers to take advantage of all the services that the B-D �rms can o(er, and to base their choice of a B-D in part on how the o(erings of the B-D �rm align with their needs.

“Look not only at the �rm, but also at the back-o:ce support,” said Hansen, who works with Raymond James. In particular, he said, ask about things like technology, compliance and issues like �nding o:ce space and hiring the right people.

�e broker-dealer also can help once you launch your business. For example, Red Goldstein, a partner in Teak Tree Capital in Fort Worth, Texas, works with Fidelity. He said the �rm helped him stay on track during the transition, even helping to �ll out client paperwork.

Finally, the panelists agreed, look for a broker-dealer you enjoy working with. To get the most of out the relationship, and to provide the best support for your speci�c business, you want to �nd a partner in the true sense of the word. •

Pick Your PartnerTake the time to �nd a broker-dealer or custodian that will work with you

Advisers should take advantage of all the services that the broker-dealer �rms can o�er, and base their choice of a B-D in part on how the o�erings of the B-D �rm align with their needs.

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The Letter of the Law

By �omas D. Giachetti

In the last 12 to 18 months, a lot of �nancial advisers have left wirehouses and broker-dealers to set up shop as independent advisers. And for most of them, the transition has gone smoothly. You can help make your own transition go well by understanding the legal issues that you face when you leave a wirehouse or broker-dealer and go into business on your own.

�e �rst thing is to understand what you can and cannot do when you leave your for-mer �rm. You must play by the rules. If you don’t, you give your former �rm an excuse to pursue you in court or arbitration. Once that happens, you are at the mercy of lawyers. �ings will be much easier if you can avoid that scenario.

�e rules to play by if you are with a wirehouse or a broker-dealer are contained in the Protocol for Broker Recruiting. �e Protocol tells you what you can and cannot take with you when you leave.

Basically, you can take your client’s name, address, phone number and email address. �at’s all. You cannot take Social Security numbers, account numbers or anything else.

Of course, once you have left your former �rm, you can and should use those addresses and phone numbers to contact your clients as quickly as possible. If you are like most advisers who go independent, you will �nd that most of your clients are loyal to you rather than to your former �rm. �ey will follow you, and they will provide any information you don’t have.

In addition, if you owe money to the wirehouse or broker-dealer, you must be prepared to pay it back, in full, when you leave. If you don’t, you are likely to end up in court or arbitration.

How to Leave Once you decide you want to leave your for-mer �rm, you should �nd an attorney who has experience in this area. �e advantage of an attorney over a consultant is that with an attorney, you have attorney-client privilege. Communication between you and your attorney cannot be used in court or arbitra-tion. Whatever you do, though, don’t try to handle the transition on your own.

How you actually walk out the door will depend in part on the type of �rm you are leaving. For example if you are leaving a wirehouse, you should be prepared to leave the premises immediately, taking only your personal property and the information you are allowed under the Protocol.

If you are with an independent broker-dealer, you might have an easier time

leaving, especially if you rather than the broker-dealer have a proprietary interest in your client relationships.

Also, look at how your speci�c entity has reacted to advisers who have left before. Learn from the experiences of those advis-ers. Your overall goal is to leave with as little hostility and con!ict as possible. �at’s best for you and for your clients, and it can help you avoid a lot of ugliness.

Where Do You Go?Once you leave your former �rm, you need to be able to start work immediately at your new �rm. Long before you leave, you should give considerable thought to the �rm you want to build. �ere are many possible models for creating your new business, from a fully independent model to a hybrid model in which you maintain a relationship with a broker-dealer. (See story on Page 7.)

In making your decision, look �rst at what you want to do. For example, if you want to sell insurance, you need an insur-ance license and a relationship with an insurer. If you want to sell variable products, you need a securities license and an a%lia-tion with a broker-dealer. If you want to do only �nancial advising and planning, and not sell any securities, you don’t need a se-curities license. But you do need to register, either with the SEC if your business meets the SEC minimum, or with the states in which you do business.

Look also at what you are good at doing. If your skills are mainly in talking with clients and helping them create a �nancial plan, you probably should create a �rm that specializes in planning. If you are good at picking individual investments, you might want to have a �rm that does mainly money management.

And consider what your clients need. What kinds of services and investments do �omas D. Giachetti

Understanding legal issues can make path to independence smoother

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they have now, and what might they need in the future? How can you continue to give them what they need?

You also need to set up your business structure, such as a corporation, an LLC or a partnership. �ere are pros and cons to each approach, and you should consult both your legal and tax professionals to determine which entity form is best for you.

Other ConsiderationsIf you are running your own "rm, you should obtain errors and omissions insur-ance. �is protects you if a client alleges that he has been harmed because you did not do something that you should have done, or because you did something that you should not have done. Going without E&O insur-ance is a recipe for disaster, because sooner or later, the chances are good that a client relationship will become adversarial.

When you consider E&O coverage, consider a policy that has higher coverage limits, even if it means having a higher deductible. �is provides better protection than a policy with a low deductible and low limits. Even though you might have to pay more in terms of the deductible, it will protect you from the kind of judgment that could put you out of business. Read your policy carefully, including the exclusions. Make sure your policy includes prior acts coverage.

�ink about how you will provide bene"ts for yourself and the other people in your "rm. Do you or any of the people you plan to bring with you have a pre-existing medical condition that could make coverage prohibitively expensive or even impossible to "nd? �is situation might change under the healthcare reform legislation passed last year, but at the moment, providing bene"ts can be an issue.

Depending on the form your new

business takes, you might have compliance considerations. Make sure you understand how you are regulated, and what you have to do to meet the regulatory requirements. �en take the time to set up a system to

handle compliance. Compliance isn’t hard, if you do it right the "rst time.

Take care when drawing up documents like client agreements. Spell out exactly what you will and won’t do. If you make a recommendation to a client and the

client turns down your recommendation, con"rm in writing that the client declined. In general, make sure that you document everything. An experienced attorney can be invaluable in drawing up documents and agreements, both for setting up your busi-ness and for dealing with your clients.

Get the Right HelpIn general, get the help you need. You don’t have to do everything yourself, and you shouldn’t anyway. Many things involved in setting up and running your business are outside your area of expertise. You are not an attorney or an accountant. And doing things you don’t really know how to do not only increases the likelihood of error, it takes you away from the things you do best: serving your clients and building your business.

Take advantage of the help o4ered by the broker-dealer or custodial "rm you choose to work with. �ese "rms have a lot of experience in helping set up businesses like yours. �ey can o4er guidance, but they can also help you with issues like "nanc-ing, hiring, technology and even renting space and buying computers. �ey want to see you succeed, so take advantage of their expertise.

�e two most important things you can do to ensure that you have a smooth transi-tion to independence are to think through your plan carefully, and then to "nd the right people to help you execute your plan. Advisers who do those things almost always "nd themselves wondering why they waited so long. •

�omas D. Giachetti, shareholder, is Chair of the Securities Practice Group for Stark & Stark. He is based in the �rm’s o ces in Princeton, N.J. For more information about the �rm, visit www.stark-stark.com.

If you are like most advisers who go independent, you will �nd that most of your clients are loyal to you rather than to your former �rm.

�ink about how you will provide bene�ts for yourself and the other people in your �rm.

An experienced attorney can be invaluable in drawing up documents and agreements, both for setting up your business and for dealing with your clients.

IN005436_p11 7/7/10 4:16 PM Page 1

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