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  • Writer's pictureRichard DeSalvo

The True Cost of Captivity

When a Financial Advisor is deciding which firm, broker dealer, platform, or custodian to select, the typical factors considered are:

  • Expectations of future success

  • Upside in earning opportunity

  • Control over future/destiny

  • Ability to realize one’s vision for their business

  • Level of client service

  • Firm culture

Making the right decision can be difficult and it takes time to evaluate the impact on your business. Typically, the first year is spent re-papering, reestablishing relationships, getting office space, hiring support staff, and much more.  In the second year, you begin non-organic growth and start meeting new people, finding new dollars, and entering new financial scenarios.

As you prospect, bring on new clients, and select investment vehicles, the flexibility of your firm will become clear when dealing with corporate policy, compliance, and fiduciary freedom. This really comes to bear when you realize that increased flexibility may have increased costs to your clients or a reduced payout to your bottom line. In the worst case, the money manager selected does not revenue share with your RIA or Broker Dealer and is unable to customize solutions.

Another hurdle with a new provider can be additional fees. You may learn that although your stated payout is correct, it does not match with your year-end tax forms (W-2). Other fees may be deducted from your payout that were either never discussed, discussed briefly, or only in the fine print of your agreement. Suddenly, what seemed so simple and exciting is now opaque and frustrating.

You are now faced with a tough decision.  You can either transition firms again or stay with your current provider for a few more years. Changing firms in a relatively short amount of time is difficult as you must restart the two-year process of transitioning.  But, staying in a negative situation may impact the quality of your work and may become a count down to when you feel comfortable to switch.

I’ve heard variations of this story countless times from different advisors. By the time advisors realize they are unhappy with their providing firm, it often feels like it’s too late. Fortunately, although it may feel this way, it’s always possible to make a change.

Learn what the real questions are to ask your next firm in the interview process. Learn how not to get surprised or disappointed as you manage possible client scenarios. Learn how to review an ADV and how to interpret their disclosures on pricing, policy, and overall business model. Find a firm that measures success by how much they help grow your business, not by the number of overall recruits. Find a firm that understands your desired level of entrepreneurialism and can structure your business to reflect that. Learn from your initial decision methodology and protect yourself next time you switch firms.

After all, your happiness depends on it.

Rich DeSalvo, COO

F3 Logic, LLC | Where Fiduciary Freedom is First


Advisory services are offered through F3 Logic, LLC, a registered investment advisor. Securities offered through Independent Financial Group, LLC, a registered broker dealer. Member FINRA/SIPC. IFG is not affiliated with any of the entities listed. Additional advisory services may be offered by the respective entities listed as permissible by state law.


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