Cost of breaking away falls

Brokers who are considering going independent are finding a bright spot amid the gloom: The cost of going it alone is down sharply.

Startup expenses have declined by an average of 30% from a year ago, depending on the region, industry experts say. The biggest savings are in rent, but labor and technology costs also are down significantly.

On some five-year leases, landlords have given new adviser tenants six months’ free rent — on top of 20% to 30% discounts, said Barnaby Grist, senior managing director of strategic business development for The Charles Schwab Corp. of San Francisco. “Often, cash flow takes longer to come in than assets,” he said.

Advisers are also discovering that in high-cost areas such as California and New York, where even expensive office space generally is hard to find, there are now many suitable choices at discounted prices.

Dorie Rosenband, who opened &Wealth Partners LLC in March after being at New York-based Smith Barney for 12 years, was stunned to find a nice 600-square-feet office at an ultraprime Manhattan location — Park Avenue and East 55th Street — for just $1,000 a month.

“We have a fabulous office space that would have never been available to us at another time,” said Ms. Rosenband, who manages about $50 million in assets that are kept at Schwab.

Technology vendors also are more open to negotiating on price.

Officials at Cabinet NG Inc. of Madison, Ala., a document management software company, said that it has been more flexible with advisers in recent months. Competitor Compulink Management Center Inc. of Long Beach, Calif., which does business as Laserfiche, lowered the price of its Avante software by 10%.

Brokers who are going independent are also finding that they can hire employees for less, said Stephanie Bogan, president of Redlands, Calif.-based Quantuvis Consulting, a practice-management advisory subsidiary of Richmond, Va.-based Genworth Financial Inc.

“Firms that are starting out are in a better spot,” she said. Someone who earned $100,000 will now settle for $80,000, Ms. Bogan said.

Still, while costs are down, the biggest issue facing brokers thinking of breaking away is whether they feel comfortable running their own business, said Danny Sarch, founder of Leitner Sarch Consultants Ltd., a recruiting firm in White Plains, N.Y. “There are a lot of hidden costs to running a business, which could make a novice business owner insane,” he said.

These include real estate taxes, the employer contribution to Federal Insurance Contributions Act taxes and a variety of insurance expenses covering liability, disability, errors and omissions, and medical care, Mr. Sarch said.

Despite all that, Stuart Shim, an adviser in Orange County, Calif., was pleasantly surprised by the costs of starting his firm, Pacific Financial Management, which manages $50 million in assets. He spent just $3,000 — a third of what he expected.

Rather than share space with other independent brokers, Mr. Shim, who left Smith Barney early last month after 11 years with the wirehouse, moved in with a certified public accounting firm in Lake Forest, Calif.

The decision was based on office culture, he said. “If I wanted to be with a bunch of maladjusted narcissists, I’d have stayed at Smith Barney,” Mr. Shim said.

Jeff Fierce, a former broker with New York-based Merrill Lynch & Co. Inc., went independent in January with LPL Financial of Boston and decided to open his own office in Indianapolis. He spent less than $2,000 on the business, which manages $40 million in assets and for the moment operates under the LPL name.

Mr. Fierce signed a six-month lease for $1,200 a month, which includes office furniture, a shared receptionist and all office supplies. He also received a free month’s rent.

When Debbie Craig left Smith Barney in early February to open Northern Lakes Financial Services Inc. in Williamsburg, Mich., she was surprised when her landlord took 40% off her annual rent.

“I also wanted nice furniture because of the kind of business we’re in,” said Ms. Craig, whose firm is an affiliate of Raymond James Financial Services Inc. of St. Petersburg, Fla., and manages $40 million in assets. She found elegant cherry wood furniture on craigslist for just $700.

E-mail Lisa Shidler at [email protected].