Fidelity Investments executives claim that financial planners can significantly eclipse their earnings potential by switching from a traditional firm-owned wirehouse to their own independent registered investment advisory.
The key, say Fidelity executives, is being able to see the big investment picture and possessing the patience and roll-up-your-sleeves work ethic to build such a firm from the ground up.
According to Fidelity's latest white paper issue this month, financial advisors considering breaking away from their current wirehouse company to start their own RIA firm can reap millions in after-tax profits.
In its new white paper, Options for Independence: Tax and Succession Considerations, Fidelity claims that over a ten-year period, RIAs could pocket as much as $21 million more in after-tax income than if they had stayed at a wirehouse.
Another advantage to going independent, says Michael Durbin, president of Fidelity Institutional Wealth Services, is the ability to transfer an RIA firm to future generations, even if the beneficiaries are not advisors themselves.
"If you go independent in the form of your own RIA, and you have an equity instrument in that RIA, you can put that equity instrument in either a family limited partnership or trust structure," Durbin said, "so your successive generations maintain the value of that equity without actually having to come into the business."
Durbin says there's another potential monetary advantage: The ability to potentially sell an RIA firm at a favorable tax rate and realize the value that the RIA firm has built up over time.
"What you really need to consider is the long-term, multigenerational after-tax value that you're creating off your book of business," Durbin said. Durbin says advisors also must determine whether their clients will come with them, if they make the leap.
Durbin concedes attractive sunset provisions at some wirehouses may be appealing to brokers looking to exit the business. "They're also heavy on income when it comes to taxation," Durban said. "Eventually you have to retire and leave your book of business. As an RIA, you choose how you want to handle that; there are more degrees of freedom."
"The best prospective clients for us are those that come into it knowing the stakes from the get go," Durbin said. Those clients tend to be advisors who can comprehend their annual earnings stream and want to build the long-term equity value of their practice, he says.