It’s natural to wonder whether where you sit is the best place to build your business and serve your clients. No doubt the DOL rule has fueled the thought process for those who work in organizations that are managed to the least common denominator. Yet while many advisors cringe at the thought of even considering a move, others move past the anxiety phase far more quickly once they recognize that there really may be a “better way”.

With independence having become as legitimate an option as being an employee, advisors have the freedom to define how they really want to live their business lives. And an industry landscape that has expanded well-beyond most expectations provides many interesting options for those with an entrepreneurial mindset.

Advisors who are exploring the independent space often come to a point where they ask themselves, “What are the differences between the independent broker-dealer (IBD) and registered investment advisor (RIA) spaces?” 

While both spaces offer a greater level of freedom and flexibility to build one’s business than one would have as a captive employee, there are some distinct differences that—depending on an advisor’s goals—would lead him to choose one over the other. There are also differences when an individual advisor looks to go independent than when a large team does. The latter will understandably have more leverage. For the purposes of this article, we'll look at the differences from an individual advisor's perspective. Here are five that stand out:

Transition money: IBDs offer transition money (upwards of 25 percent up front and in some cases as high as 125 percent) as incentives that RIA custodians don’t. And while an advisor can monetize by joining some national RIA firms, most are W-2 models where the advisors are not truly “independent” in the sense that they are an employee or partner at a larger firm.

Support: The IBD space offers more “cover” and support for a breakaway broker. For most brokers, the environment tends to feel more familiar and therefore less overwhelming than the move to the RIA space.

Equity And Future M&A potential: For the most part, sophisticated buyers and sellers don’t look to the IBD space to buy or sell. Typically they don’t want to be limited by the override the IBD takes or the restrictions it places on its advisors. Those would-be entrepreneurs who are looking to maximize enterprise value at day’s end often look to the less restrictive RIA environment. Either way, they will need to make sure that the underpinning of their business is solid and will allow for the greatest amount of optionality.

Can you expect equity and, if so, how much? That depends on your business and the size of the firm you are moving to. If you have $150 million in assets under management and the firm you are moving to has $400 million you most certainly can. If the firm you are joing has $3.5 billion, becoming an equity partner may depend on achieving certain goals.

Freedom and flexibility: Although the IBD space has fewer limitations than being an employee environment, entrepreneurial folks are likely to feel stymied by requirements to use the BD’s platform and technology. While an RIA is responsible for its own compliance, oversight and technology decisions, an advisor can build a more custom experience that best fits his specific business. As long as a firm remains in compliance with applicable regulations, it has free rein to service clients, market services (including social media) and maintain outside business activities as it sees fit.  

Community: While there are a fair amount of top advisors in the IBD world, a majority of the corner office folks who are interested in building an enterprise practice are in the IBD/RIA hybrid space. As a result, the IBD community can be wrong for some advisors.

To put this into perspective, let’s consider “Larry’s” story. A high-quality financial advisor, Larry has worked at the same wirehouse firm for almost 20 years. He has a book of 75 high-net-worth clients and manages just shy of $600 million, generating annual revenue of approximately $4.5 million in fees. In major growth mode, Larry has been offered outsized transition deals from other wirehouse and regional firms, and could take his enviable book and go anywhere he chooses—or not. But Larry has always had an itch to be a business owner, so he knew that if he left his firm, it would be to enter the land of independence.

Over a period of a year, he met with business development folks and senior leaders from five different IBDs, RIA custodians, service providers like Dynasty Financial Partners, and quasi-independent firms like HighTower Advisors. Each of the prospective firms were wildly interested in Larry because he is personable, has built a great and growing business, which is 75 percent annuitized, and has no compliance issues.

After all of these meetings, Larry was left to determine which space would serve his business best: RIA or IBD?

Many might say, “Why not go to the highest bidder?”  Truth be told, there is no free lunch: While transition money is often very attractive, that may mean giving up some freedom and flexibility.

No matter which choice Larry—or any other advisor who finds himself at this same fork in the road—makes, the key is to move forward knowing what limitations may lie ahead. Ultimately, whether he chooses the IBD or RIA space, he will still have more independence than he has now—and often, that’s what matters most.

Mindy Diamond is the president and CEO of Diamond Consultants Inc.