Options for Independence

Introduction
Inside
In 2005, Fidelity Institutional Wealth Services (Fidelity) Why Go Independent? 2
produced a white paper entitled Making the Move to an RIA, New Avenues 3
which examined some of the reasons for the large increase Join an Established RIA 4
in the number of new Registered Investment Advisor (RIA)
Partner with a Third Party 6
firms being formed at that time.1 Registered representatives
Start Your Own RIA Firm 8
from numerous channels were attracted to the freedom and
Considerations for All Models 10
autonomy of becoming an RIA. They realized this model would
enable them to be completely independent from the larger, The Financial Picture 10

sales-oriented culture of a broker-dealer and allow them to run Summary 11

their own businesses as they saw fit.

Despite one of the toughest market environments in a generation, many individuals from the broker-dealer
community are still considering making a move. According to the Broker and Advisor Sentiment IndexSM
study2 conducted in 2008 by National Financial, 9% of those interviewed said they are likely to switch firms
in the next 12 months, and 30% of those likely to switch say they are looking to go to the independent RIA
channel – up from 15% the year before.

Percentage likely to switch firms in the next 12 months

10% 9% 9%
100
90
80
70
5% 5% 60
5%
30% looking to go to the 50

30% 40
independent RIA channel versus
30
15% 15% the year before 20
10

0% 0
2005 2006 2007 2008
Source: National Financial Broker and Advisor Sentiment IndexSM, 2008

1
According to Cerulli Associates, the number of new RIAs formed in 2004 jumped 20% over the previous year; Cerulli Associates, “Retail Registered Investment
Advisors in Transition,” 2005.
2
Fourth annual measurement of U.S. brokers’ and advisors’ satisfaction conducted in the fall of 2008 by an independent party on behalf of National Financial;
an electronic study of more than 1,200 participants with results weighted to reflect channel distribution.
Clearly the scandals on Wall Street that have tarnished
the brands of some of the biggest financial institutions Registered Investment Advisor (RIA) Firms
have caused many registered representatives to rethink are independent businesses providing
their current business model and future goals. At the financial advice and investment solutions
same time, new options for going independent are
to households and institutional investors,
making the move more appealing for those who may
have dismissed the idea of starting their own firm in the such as endowments and pension funds. As
past. Some of these options support both fee-based fiduciaries, they are legally bound to put the
and commission income streams,3 also known as hybrid interests of their clients first. In addition, they
models. These models require registration with the
charge fees for service typically based on
Securities and Exchange Commission (SEC) for fee-based
a percentage of assets under management
business and registration with the Financial Industry
Regulatory Authority (FINRA) for commission-based (AUM), rather than commissions. RIAs with
business. In addition, a pact between several wirehouses, more than $30 million in AUM must register
other broker-dealers, and RIA firms (called the Broker with the SEC (RIAs with between $25 and $30
Protocol) is reducing the fear of legal action for registered
million in AUM may register with the SEC),
representatives who move between members of the
Protocol and follow specific guidelines regarding and those with less register at the state level.
client contact.

“The mantra over the past year on Wall Street has moved from
what’s my firm doing for me to what’s my firm doing to me.
The good advisors have retained their clients despite their firm,
which has prompted more interest in the independent space.”
Edward Friedman, Managing Director,
HighTower Advisors

Why Go Independent?
Being in the midst of a turbulent market environment may seem like a good time to stay put. Yet, market conditions have
created three important reasons for considering a transition today:

1. Obtain financial flexibility, freedom, and the ability to build equity. As an independent, you will be in control of your
financial destiny. You will be able to establish your own fee schedule, and your personal income will be determined by
how well you manage revenues and expenses. In addition, as you build the business, you will be creating a valuable
asset that may be sold at some point down the road.

2. Build and strengthen your brand. Clients look to you for guidance and entrust you with their money management, but
many are currently concerned about the integrity of some financial institutions. As an independent, relationships are with
you rather than the institution you represent – a valuable proposition for those clients disenchanted with Wall Street.

3. Gain autonomy and control. As an independent, you are in the driver’s seat making the decisions you believe to be
right for you and your clients – from your product lineup to the selection of technology and infrastructure.

3
Please note that there are different regulatory requirements necessary to conduct commission- and fee-based business.
The testimonials provided in this white paper are from third-party companies, unaffiliated with Fidelity Investments. Their business needs and results may not reflect
the experience of other Registered Investment Advisors. The opinions they express do not necessarily reflect those of Fidelity Investments or any of its affiliates.

2
New Avenues
This latest research brief, Options for Independence,4 reviews some of the choices now available to help you
understand the alternatives for going independent and assess which one best fits your business style and objectives.
The brief looks at three routes for going independent:

■ Join an established RIA: Existing firms that are now offering employee or partnership opportunities to advisors
considering independence;

■ Partner with a third party: Firms (often referred to as roll-ups, aggregators, or consolidators) looking to support
advisors new to the RIA world with instant access to the infrastructure and support needed to service clients in a fee-
based or hybrid model; and

■ Start your own RIA firm: Advisors who have set up their own RIAs and are in complete control of all aspects of
the business.

As you evaluate your options, consider which model provides the financial freedom, ability to build your brand, and
autonomy you are looking for relative to ongoing responsibilities, time commitments, and costs. Whether you plan to
be 100% fee-based from the outset, transition to fees over time, or continue to retain some commission business, there
are solutions within each of these models to support your needs.

Join an Established RIA Partner with a Third Party Start Your Own RIA Firm

Level of Ownership/Independence

Broker Protocol
The Broker Protocol, first created in the fall of 2004, is a pact among a number of wirehouses, other
broker-dealers, and RIA firms to address concerns regarding legal actions for those considering
moving on. The pact stipulates that members of the Protocol will not sue registered representatives
departing to other member firms when they try to take their clients with them, as long as they
announce their departure only after joining the new firm.
Fidelity is not a member of the Broker Protocol.

4
Options for Independence is based on the findings from 14 interviews with Fidelity clients across the three business models: those with newly formed RIAs,
those with established RIAs in practice over three years, and those in RIAs and third-party firms looking for advisors to join or affiliate with their organizations.
In-depth phone interviews were conducted during May and June of 2009.

3
Join an Established RIA
This model is for advisors who are:
• Willing to mesh with another firm’s culture
and operating style
• Open to considering an employee status
• Open to relinquishing some autonomy
and control over client relationships
While starting an RIA firm may continue to appeal to
highly entrepreneurial individuals, the economic climate
is causing others to consider joining an established
practice with a proven track record. This enables advisors
to avoid the effort and cost associated with setting up a
new business by becoming part of another advisory firm
that has already put the right people, infrastructure, and
procedures in place. At the same time, they can avoid
the distractions of hiring employees and establishing
procedures during the important transition period, and
stay focused on client-facing activities.
Today, many RIA firms are looking to expand their ranks
through inorganic growth by bringing on advisors that
are a good fit for the culture and business focus of their
organizations. There are a wide range of opportunities
here, from joining a firm as a more junior employee to
entering into a partnership relationship where you might
take on a managerial role and have an equity ownership
position. As you consider these alternatives, keep in mind
that some firms may want to take ownership of your client
relationships, while others are more flexible on this front.
In addition, the economic models can vary substantially,
with some firms offering compensation based solely
on salary and bonuses, while others include up-front
payments and retirement succession plans.
4
Given this variability, before you meet with individual
firms you should ask yourself a number of important
questions, including:
■ What size of firm has the most appeal?
■ What role am I looking to fill?
■ Do I want to be part of a long-established organization
or a younger firm with more flexibility?
■ What level of compensation is needed?
■ Is having an equity position important?
■ Am I willing to relinquish ownership of current client
relationships? What about new relationships built at
the firm?
As you evaluate different possibilities, consider the fit
from a cultural and personality perspective that can be
essential for a successful long-term relationship. You
should also evaluate the firm’s overall ability to support
new advisors, their technology platform and client service
model, and their willingness to invest in the business over
time. Other considerations include the firm’s:
■ Track record for growth
■ Investment philosophy
■ Research capabilities
■ Client profile and average account size
■ Back-office capabilities
You may also want to take a very close look at the
different economic models, whether or not they
accommodate commissions, and how they will support
your transition and assist with asset growth over time.
To illustrate the range of possibilities,5 the table below provides two examples from our interviews: (1) joining a boutique
RIA firm as an employee; and (2) joining a larger RIA firm as a partner.

Example 1 Example 2
Join a Boutique RIA FIRM as an Employee Join a Large RIA FIRM as a Partner

Business ■ You join the firm as an employee and work under ■ You offer a majority stake in your practice for a
Model their brand negotiated financial payout
■ You have minimal input on how the business is run ■ You stay active in the business and transition
ownership over time
■ You adhere to the stated investment philosophy
and general practices of the firm, and use the set of ■ You adhere to the firm’s investment philosophy
investments recommended by the firm's in-house and practices, with the flexibility to offer a range of
research team investment choices

Economic ■ You receive a salary based on the ongoing level of ■ You may receive an up-front payment for joining the
Model AUM you support, with potential bonuses and other firm and share in revenues
incentive compensation ■ The firm covers all of your fixed expenses and offers a
■ The firm covers all of your fixed expenses retirement succession plan

Commission ■ This may be a fee-only firm and you may need to ■ As an RIA and a broker-dealer, the firm handles your
Business transition your commission business before joining commission business

Transition The firm: The firm:

Support ■ Helps you develop a transition plan and determines
if all assets are portable
■ Provides guidance on how to communicate with
clients regarding the move, fill in paperwork, and help
ensure assets move in a smooth and timely fashion
■ Helps you develop a transition plan and determines
if all assets are portable
■ Plays an active role in securing legal counsel, helping
with registration requirements, and handling details
for the transfer of assets
■ Obtains errors and omissions (E&O) insurance

Marketing ■ The firm has a marketing strategy in place to build ■ The firm has a marketing strategy focused on building
recognition for its brand brand recognition and promoting the strengths of
senior team members

Services The firm provides: The firm provides:

Offered ■ Access to technology for managing client
relationships, reporting, etc.
■ Compliance, accounting, and human resources
(HR) support
■ Access to an in-house research team and assistance
with portfolio construction, monitoring, and
rebalancing
■ Access to a customer relationship management (CRM)
system and technology for reporting, etc.
■ Centralized administrative services for compliance,
accounting, and HR
■ Investment management support that includes an
in-house research team and resources for portfolio
construction, monitoring, rebalancing, and reporting
■ An opportunity for you to open a new office if the
team is big enough

5
Not all firms are the same, and there may be variations in each established RIA model. A Fidelity representative can provide additional information and help
you determine the right fit.
The testimonials provided in this white paper are from third party companies, unaffiliated with Fidelity Investments. Their business needs and results may not
reflect the experience of other Registered Investments Advisors. The opinions they express do not necessarily reflect those of Fidelity Investments or any of
its affiliates.

5
Partner with a Third Party
This model is for advisors who are:
• Seeking independence but want a third party
to handle compliance, technology selection
and configuration, and more
• Willing to give up some decision-making
authority
• Looking to retain ownership
Another model that is gaining a lot of attention provides
immediate access to the infrastructure and support of a
third-party firm (often referred to as a roll-up, aggregator,
or consolidator) for a fee. This is ideal for advisors looking
to retain control of their business but who don’t have
the time or the entrepreneurial inclination to run all the
day-to-day aspects of a practice. “Our goal is to reduce
the time spent on non-revenue-generating activities
so advisors can spend more time on asset gathering
and client services,” said David Blisk, Co-Founder and
Managing Director, Spire Investment Partners, LLC.
Many third parties do the heavy lifting to help you
through a successful transition and to position your
business for future growth. This can include incorporating
your entity, finding office space, and providing back-office
and operational services, legal assistance, compliance,
marketing, and more.
Some of the partnering firms are long-running RIAs.
Others are newly established with the sole objective
of providing know-how and services for registered
representatives looking to go independent. Many
executives at these latter firms include top talent from
wirehouses who are no longer involved with end clients
themselves but focus completely on meeting the needs
of newly formed RIAs.
“We are working with advisors who
believe their time is best spent in front
of clients – cultivating new relationships
and working on the business, not in the
business.”
Chris Hicks, President, FocusPoint Solutions
6
“We are a platform company that
replicates an advisor’s current
environment so they can leave their firm
and comfortably plug into one that has a
very similar look and feel without having
to create that on their own.”
Felipe Luna, President, CONCERT Wealth
Management
This option offers choices for advisors at all levels, from
highly experienced teams looking to establish their own
office, to candidates for joining an office and splitting
expenses, to those that might initially work from home as
they build their business.
The economic models vary across third parties. Some
provide services for a percentage of annual revenues
and help with the transition by underwriting the cost of
setting up an office, which may be financed back to you
over time. Others bear all the set-up costs to establish an
office, without requiring repayment, and then have you
pay your pro-rata share of expenses on an ongoing basis.
Certain firms also provide transition deals similar to those
offered at wirehouses, which may include equity in the
partner firm.
In most cases, you have the choice of working under the
partnering firm’s brand, co-branding, or using your own
identity. While marketing support may be provided to
create a Web site and brochures, most advisors prefer
to co-brand at a minimum to benefit from ongoing
marketing and public relations (PR) activities at the
partner firm level.
Each third party has its own criteria for what makes a
good match, which typically includes a certain level of
AUM and type of client. Many also want advisors who
are on a growth path and walk those considering making
a move through a significant due diligence process to
make sure it is a fit for both parties. This might include
creating a pro forma profit and loss (P&L) of what your
business will look like if you moved to the third party's
platform. “This serves two purposes,” Edward Friedman,
Managing Director, HighTower Advisors said. “One is
for us to say this business makes sense on our platform,
and the other is for the advisor to say this makes sense
for me as my take-home compensation is close to where
I am currently.”
Most third parties support fee-based revenues as well as commissions through established partnerships with several
broker-dealers. In some instances, the firm is both an RIA and a broker-dealer supporting commissions from mutual
fund trails, variable annuities, private placements, 401(k)s, and 529 plans.

The table below provides two examples of partner firms that are targeting different types of advisors and that offer
different levels of service.6

Example 1 Example 2
Partner with a Third Party Partner with a Third Party
for a Fee for a Fee and Obtain an Equity Stake

Business ■ You partner with the firm for access to infrastructure ■ You partner with the firm for access to infrastructure
Model and the opportunity to obtain equity ownership and
provide input into the firm’s development

Economic ■ The fees you pay are based on a percentage of your ■ The firm covers your office setup costs with no
Model ongoing revenues repayment; you pay a pro-rata share of expenses on
■ The firm provides succession planning using industry an ongoing basis, and additional services and support
standards for evaluating your business fees are a percentage of your ongoing revenues
■ The firm offers a part cash, part equity transition deal
and provides retirement succession planning using
industry standards for evaluating your business

Commission ■ You can handle your commission business through a ■ The RIA firm is also a broker-dealer, and will handle
Business broker-dealer with which the firm works your commission business

Transition The firm: The firm:

Support ■ Works with you to develop a detailed transition plan
■ Provides guidance on Form ADV filings and all
registration requirements
■ Discusses how best to transfer assets
■ Helps complete new account paperwork
■ Helps structure an Investment Management
Agreement
■ Provides extensive due diligence to ensure a match
■ Works with you to develop a detailed transition plan
■ Audits your current portfolios to determine if all assets
are portable
■ Helps complete new account paperwork
■ Secures legal counsel; handles Form ADV filings and
all registration requirements
■ Obtains E&O insurance
■ Builds out and helps staff your office

Marketing ■ You can retain your own identity, co-brand, or brand
under the firm’s name
■ The firm has PR and marketing campaigns for its
brand, but no support is provided for marketing your
own entity
■ You can retain your own identity, co-brand, or brand
under the firm’s name by coat-tailing the firm’s
marketing efforts
■ Web site development and brochures are provided at
attractive rates should you choose to build your own
brand

Services The firm provides: The firm provides:

Offered ■ Access to technology for CRM, reporting, etc. ■ Access to technology for CRM, reporting, etc.
■ Centralized administrative services for compliance, ■ Centralized administrative services for compliance,
technology, accounting, and HR technology, accounting, and HR

6
Not all partner firms are the same, and there may be variations in each third-party model. A Fidelity representative can provide additional information and
help you determine the right fit.
The testimonials provided in this white paper are from third-party companies, unaffiliated with Fidelity Investments. Their business needs and results may not
reflect the experience of other Registered Investment Advisors. The opinions they express do not necessarily reflect those of Fidelity Investments or any of
its affiliates.

7
Start Your Own RIA Firm
This model is for advisors who are:
• Entrepreneurial in spirit and dedicated to
serving clients as well as running a business
• Interested in establishing their own back-
office and operating procedures
• Seeking full control of their P&L and equity in
the business
Some people are natural entrepreneurs and want the
complete independence that running their own business
offers. This may not be for everyone, however, and
the individuals interviewed for this brief were quick to
point out that being a good financial advisor and being
a good day-to-day business manager are two very
different things. If you choose to run your own RIA, you
will have the flexibility to determine the philosophy and
style of your operation. Of course, you will also have full
responsibility for recruiting and managing employees,
handling technology, managing regulatory and
compliance issues, and overseeing day-to-day activities.
You also need to look closely at the time commitment
required to get everything up and running. Most of the
individuals interviewed took six months to a year to put
everything in place, and said it was like having a part-
time job.
“There are a lot of moving parts. While
no single part is super complicated,
you need to be really organized and
determine how you will schedule the
time to do everything.”
C. J. Rendic, Principal, Parallel Advisors, LLC
The testimonials provided in this white paper are from third-party companies, unaffiliated with Fidelity Investments. Their business needs and results may not reflect
the experience of other Registered Investment Advisors. The opinions they express do not necessarily reflect those of Fidelity Investments or any of its affiliates.
8
Elements of Successful Planning
So, how do you successfully handle all the details needed
to establish and run your own show? Here are five things
you may want to consider from our interviewees:
1. Line up legal support as soon as you consider making
the move to help ensure you have a sound exit strategy
and the situation doesn’t become confrontational with
your existing firm. An experienced lawyer can help
guide you on restrictive covenants and how to address
issues like forgivable loans, which can sometimes be
renegotiated for more favorable terms. They can also
provide valuable insight on the best tax structure for your
new business and help with your Form ADV, client forms,
and more.
2. Choose your external providers in advance and
be sure to identify your custodian very early on so you
can work closely with them to create a master plan for
your transition and an associated list of all the things
that need to be done – from the operational side to
technology, compliance, and office setup. Then work
through your list in a methodical fashion. Select other
third-party providers in advance as well. Once you make
the move, your primary job will be getting your assets
transferred over and you don’t want any distractions.
3. Outsource as much as possible until you can get a
handle on what you can and can’t do internally. This may
include such things as human resources (HR), accounting,
legal, compliance, technology support, and portfolio
reporting.
4. Keep your investment approach simple so it is
scalable for the long term. By streamlining your use
of investment products you will have more time for
managing client relationships and gathering assets.
5. Don’t scrimp on the areas that will be most important
to your long-term success, such as legal, compliance,
and technology. Have a vision for the future and make
choices that will support your growth over time, including
creating the right brand for your target audience and
investing wisely in marketing initiatives.
Our interviewees also said you need to take the emotion
out of your analyses and decision making. While a
change of this nature can be very stressful, speaking with
others who have made the move can help reinforce the
fact that it is all worth it in the end.
You also need to determine if you will move to a fee-
only model or retain some commission business. Some
advisors choose to be fee-only from the outset, others
transition to all fees over time, and still others retain
The table below provides two examples of advisors starting their own firm – one choosing to be 100% fee-based
and the other a hybrid (fee-based with some commissions).
Example 1
100% Fee-Based
Business ■ You start a firm that is 100% fee-based, leaving behind
Model any commission business you have
Economic ■ You charge a fee based on a percentage of AUM
Model ■ You set this at 1% on all securities to be in line with
industry averages
Transition ■ You work with your custodian to understand and plan
Support for all the steps involved in a successful transition
■ You are required to register with the SEC
Compliance ■ You handle all of your compliance issues and choose
to tap into the expertise of a third-party compliance
specialist to ensure everything is in order
Marketing ■ You develop a marketing strategy to support your
firm’s long-term goals
■ You obtain access to third-party professionals at a
discount through your custodian to develop your own
identity on collateral, letterhead, business cards, etc.
Services ■ You provide a range of services to your clients that
Offered meets the stated vision and business objectives of
your firm
commissions as an important part of their practice
(a hybrid model – see below). If you are dually registered
you will have to work with both the SEC and FINRA, and
will need enough commission revenues to justify the
added costs and complexities this will bring. Keep in
mind that in the fee-only model registered with the SEC,
you will not be compensated on such things as ticket
charges, interest on cash positions, or custodial fees.
Example 2
Hybrid Model
■ While about 80% fee-based, you choose to start a firm
that maintains fees and commissions
■ You affiliate with a broker-dealer firm that enables
you to keep your securities licenses and handle
commissions from mutual fund trails, 401(k)s, 529
plans, and variable annuities
■ You charge a mix of fees based on AUM and
commissions
■ You set your AUM fees at 1% on all securities
■ Your broker-dealer charges a handling fee on your
commissions
■ You work with your custodian to understand and plan
for all the steps involved in a successful transition of
your fee-based business
■ You work with your broker-dealer on the
commission side
■ You register with the SEC for your business as an
RIA and with FINRA for your business with the
broker-dealer
■ You handle all of your compliance issues and choose
to tap into the expertise of a third-party compliance
specialist to ensure everything is in order
■ Your broker-dealer has some supervisory
responsibilities
■ You develop a marketing strategy to support your
firm’s long-term goals
■ You obtain access to third-party professionals at a
discount through your custodian to develop your own
identity on collateral, letterhead, business cards, etc.
■ You provide a range of services to your clients that
meets the stated vision and business objectives of
your firm
9
Considerations for All Models
Having Your Clients Follow
Naturally, one of the most challenging aspects of the
transition is trying to determine how many clients will
follow you. According to Aite Group, the majority of
advisors who leave a wirehouse for more freedom retain
75% or more of their client assets.7
While all the advisors we interviewed said they worried
a great deal about how many clients would come
with them, most brought over more than 90% of their
relationships in the end. They offered five points you may
want to consider on this front:
1. Be realistic about which clients may come with
you. You may be pleasantly surprised by some, and
disappointed by others. The major contributing factors
to the portability of clients include the average account
size, client tenure, and whether the business is based on
fees or commissions.
2. Evaluate your use of proprietary investment products
and make sure they are portable. Also consider the tax or
expense implications of liquidation for your clients.
3. Do detailed analyses to understand your financial
picture if 20%, 30%, or even more of your clients don’t
move with you. You should be prepared for a worst-case
scenario and know what that means for your revenue flow.
4. Realize there may be a ramp-up period as not
everyone will come over at once. A quarterly billing cycle
may result in some short-term cash flow issues until your
recurring revenue begins to come in consistently.
5. Do everything you can to ensure a smooth transfer
of assets including having a very organized transfer
spreadsheet to share with your custodian. Getting your
assets on board as quickly as possible is critical for
meeting your time frame for breaking even.
7
Aite Group, Wealth Management Goes Independent, 2009
8
Fortifying RIA Practices for Long-Term Success, Rydex
AdvisorBenchmarking, Inc., 2008. The data reported in this study was
provided from a survey of more than 1,000 advisory firms administered by
Rydex AdvisorBenchmarking.com between February – May 2008.
9
For more information on the Financial Advisor Economic Estimator, please
contact a Fidelity representative at 800-284-1675.
10
The Financial Picture
Revenues
As an independent, you will be able to keep all of your
revenues after expenses and taxes. Depending upon
your business, your revenues may include:
■ Fees you collect on assets under management (AUM).
■ Any hourly or project-based fees you may put in place
for planning or consulting services.
■ Commissions and trails should you affiliate with a
broker-dealer, minus handling charges.
According to a 2008 Rydex AdvisorBenchmarking Survey
of more than 1,000 advisory firms, the median asset
management fee was 1% in 2007,8 which is a useful guide.
Expenses
Your expenses will depend on your business model and
staffing requirements, and will be determined by such
factors as your location, choice of office space, hardware,
software, and more. In addition, you will have to incorpo-
rate the need for relevant licenses as well as such items as
insurance, health benefits, and marketing support.
Fees will vary depending on whether you need to absorb
all the costs on your own, or whether they get shared
across other advisors when you affiliate with a third party
or join another RIA firm. Fidelity has developed the
Financial Advisor Economic Estimator 9 (The Estimator)
to help you assess the various expenses involved. The
Estimator can help enable you to undertake a detailed
analysis of your anticipated revenues and expenses as an
RIA and compare this to your current situation to better
understand the financial picture over a ten-year period.
According to the Estimator, advisors with revenue
between $250,000 and $500,000 will need $40,000 to
$60,000 to establish their practice. Above the $1 million
revenue mark, they may need as much as $100,000 or
more. The Estimator also shows that expenses, before
salaries, should be between 25% and 35% of net revenue
on an ongoing basis, although larger practices will
generally have a more complex structure. In addition, as a
rule of thumb, income to the advisor should be between
40% and 55% of revenue for practices under $1,000,000,
and between 30% and 45% for the owners of larger firms.
This depends on cost structure as well as investments in
growing the practice.
Break-Even Scenarios
“When can I expect to break even?” is a question at
the top of every advisor’s list. This can depend on your
expense profile, which clients come with you, and how
quickly they move. Many of those interviewed said you
may begin to generate healthy incomes within the first
($ in millions)
three months if the asset transfer process goes smoothly.
Since many costs are fixed, initially your margins should
increase nicely as your business begins to grow. At a
certain point, of course, you may need to expand to
support this, but that may depend on your specific client
profile and the scalability of your business.
“We built a strong operational staff from
the beginning. So if we add $125M to
our asset base and that represents 125
clients, we can support it. If it represents
500 clients, we would need to add staff.”
Jeffrey J. Alvarez, Chief Operating Officer,
Heritage Wealth Management, LLC
Long-Term Equity
Another very important consideration on the financial
front is the ability to build equity in your own business
and monetize it over time (see Post-Tax Earnings chart as
an example). You will need to weigh this against the value
of recruiting bonuses and the like being offered
at wirehouses.
The Estimator uses an equity value of 2.2 times trailing
12-month revenue for advisors that start their own firm,
which is then adjusted to reflect such things as the mix
between fees and commissions, age and location of
clients, and transition risks. The Estimator uses an equity
value of 1.5 times annual production for partnering with
a third party to account for the fact that advisors may
receive up-front cash, which can affect their payment on
the back end.
As you try to compare firm equity to wirehouse
incentives, be sure to account for the fact that recruiting
bonuses are often in the form of company stock plus
deferred revenue that requires a net present value
calculation. In addition, the Estimator can help you
understand the tax implications of taking a forgivable
loan at your broker-dealer, which can be substantial, and
how that compares to your potential net income as an
independent.
Post-Tax Earnings Before Owner’s Compensation
(Cumulative)
Start an RIA Firm Wirehouse
$5.0
Equity Value
$4.0 (if you sell
in year 10)
$3.0 $2.3M
$2.0
$1.0 $0.4M
$0
Year
1 Year
1 2 Year
2 3 Year
3 4 Year
4 5 Year
5 6 Year
6 7 Year
7 8 Year
8 9 Year
9 1010
Years
Source: Fidelity Investments’ Financial Advisor Economic Estimator, 2009
This scenario assumes a wirehouse representative with $1M in production,
$125M in estimated assets, 10% in commission business (of which, 90% is paid
at 100 basis points), 90% of assets are fee-based paid at 100 basis points, a
10-year wirehouse forgivable loan at one-times production and long-term
equity at 50% of production. The post-tax earnings is calculated using a 35%
income tax rate and U.S. average real estate costs.
Analysis used to estimate the future scenario for Start an RIA Firm is based on
data licensed from Concert Wealth Management, which was compiled from
more than 100 interviews with prospects in the California region conducted
from 2008–2009. Technology expenses are based on Fidelity WealthCentral®
costs. The data used to generate this illustration is intended to provide you
with a general idea of what to expect in this future scenario and numerous
factors make the Estimator's calculations uncertain, such as the use of assump-
tions about historical revenues and expenses. The Estimator uses data pro-
vided by third-party vendors in the simulations and the accuracy or timeliness
of that data cannot be guaranteed.
Summary
The environment on Wall Street is pushing more advisors
to consider independence to obtain financial freedom,
build and strengthen their brand, and have autonomy
and control over their business. While the three options
for going independent discussed in this brief emphasize
these benefits in different ways, the broad set of alterna-
tives now available is making the move more appealing
for registered representatives who may have dismissed
the idea of starting their own firm in the past.
“It is the best thing I ever did – from a
self-actualization point of view, from
a business point of view, from an income
point of view. It was a great decision
for me.”
Blaine Lourd, Founder and CEO, Lourd Capital
Management
The testimonials provided in this white paper are from third-party compa-
nies, unaffiliated with Fidelity Investments. Their business needs and results
may not reflect the experience of other Registered Investment Advisors.
The opinions they express do not necessarily reflect those of Fidelity
Investments or any of its affiliates.
11
How Fidelity Can Help
Understanding your true motives for seeking independence, and taking the time to evaluate the
different routes available, is essential for long-term success. Our experienced and knowledgeable
Fidelity team will work closely with you to help you understand what it means to go independent and
guide you in evaluating your current practice and future goals to determine a business model that best
aligns to you and your clients’ needs.

Once you have chosen your business model, an experienced Fidelity representative can work with you
through the transition process of going independent via the Fidelity Transition Solutions program.

We have helped hundreds of advisors start up their own businesses and have the products, services,
and knowledgeable professionals to support you at every stage.

About Fidelity Institutional Wealth Services

Fidelity Institutional Wealth Services (Fidelity) is a leading provider of wealth management, custody, and
brokerage services to financial intermediaries. The company manages more than $320 billion in assets on
behalf of more than 3,500 RIAs, bank trusts, and third-party administrator (TPA) firms, as of June 30, 2009.
Fidelity provides access to a flexible, open-technology environment, extensive practice management
resources, and wealth management investments and services – all backed by the long-term commitments
of a private company. Dedicated relationship professionals work consultatively to help clients choose
products and services that are in the interest of their clients and that make the most sense for their business.

For more information please contact a dedicated

Fidelity representative at 800-284-1675 or visit
www.fiws.fidelity.com/becominganria.

Fidelity Institutional Wealth Services

200 Seaport Boulevard, Z2B1
Boston, MA 02210

For Investment Professional use only. Not for distribution to the public as sales material in any form.
The content provided in this paper is general in nature and is for informational purposes only. This information is not individualized and is not
intended to serve as the primary or sole basis for your decisions as there may be other factors you should consider.
The third-party service providers listed are independent companies and are not affiliated with Fidelity Investments. Listing them does not suggest
a recommendation or endorsement by Fidelity Investments.
The projections or other information generated by the Fidelity Advisor Economic Estimator tool are hypothetical in nature, are not guarantees of
future results, and are provided for informational purposes only. Fidelity Investments is providing this information as a service to your firm. You are
responsible for evaluating your own practice, conducting your own analysis and due diligence based on your specific situation, and making appro-
priate decisions for your firm. Those decisions may be based on these and other factors you deem relevant. This information is not meant to be
exhaustive of all possible options you may consider. Fidelity Investments is not responsible for your action or inaction as a result of this service.
Fidelity Investments and the Pyramid Design logo are registered service marks 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.

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