Break Away From The Pack

Will my income suffer if I go independent?

On Behalf of | Oct 5, 2021 | RIA Formation |

Thinking of leaving a wirehouse to establish your own firm? You are not alone. The number of registered investment advisors breaking away from corporate positions to go independent has increased in recent years. Many who are thinking about going the independent route worry whether they can afford it. Fortunately, there are factors that you can examine when weighing the financial incentives of remaining at your current job or breaking away on your own.

Estimating compensation vs. costs

Independent advisors often receive higher payouts than those dependent on a corporate employer., for instance, estimates that independent advisors receive up to 50% more than advisors working at wirehouses.

This financial incentive, though, is not without its downsides. Any surplus money must often be reinvested in your endeavor. After all, independent RIAs do not have firms to pay their overhead costs. You will have to shoulder the overhead yourself. The expenses you must weigh before going independent include:

  • Commercial rent
  • Office supplies
  • Payroll taxes
  • Insurance
  • Advertising
  • Licensing and various fees
  • Business counsel
  • Professional accounting

You should carefully calculate the expenses that you anticipate for an independent endeavor and weigh them against the income you expect to see. When making your estimate, err on the higher side to grant you some leeway in case unexpected costs pop up.

Ultimately, is it worth it?

About 85% of advisors who went independent did not see a decrease in their compensation. That does mean, remember, that 15% did. Between the overhead costs, the threat of losing clients and the many legal and administrative details, leaving a wirehouse is no mean feat.

However, those who choose the independent route have many other benefits to look forward to, and not just the potential increase in pay. Independent RIAs can look forward to the possibility of selling their business and putting the proceeds toward their retirement assets. Then, there is the priceless feeling of having complete control over your own schedule, client list, pace and business decisions. Those incentives can be worth more than any compensation imaginable.