What to do — and not to do — when going independent

Breaking away from a wirehouse or other firm with an employee model is scary, but you won't have to do it all by yourself, according to advisers who've set up their own shops. "We had no idea what we were doing," said Kenneth Hobbs III, managing partner at Clearview Investment Partners LLC, a former UBS broker who formed the firm in 2009 with three partners. The firm manages about $155 million. "We stumbled into it," said Mr. Hobbs, who spoke Sunday on a panel at the FPA's annual conference in San Diego. "You find good people [to help], then they refer other good people, and it all falls into place." The growth of RIA breakaway firms has spawned a growing number of outsourcing firms that can help with compliance, technology and marketing. "There's a big misunderstanding that you have to do everything yourself," said Brian Hamburger, managing director of MarketCounsel, a compliance consultant. But that doesn't mean advisers can completely ignore things they outsource, he said. Even with help, going independent after spending many years in a wirehouse is daunting, panelists said. "Wow, you get there [with your own firm], and you're on your own," said Richard Shields, a senior financial consultant at Synergy Financial Group of Arizona LLC, which manages $57 million. "With your own firm, you have to worry about [computer] servers, the security, and a lot of [other] stuff you have to coordinate." "There was a lot more regulation than we thought," Mr. Hobbs said. The Securities and Exchange Commission audited his firm 10 months after he set up shop. The SEC had a "long list" of things they wanted to see, Mr. Hobbs said, including a receipt for a $12 expense item for plant food. And "be very careful what partners you choose," Mr. Hobbs added. His three partners had worked together for 15 years prior to forming Clearview. When partners do need to break up, the sooner the better, Mr. Hamburger said, because a higher value, more established firm, is harder to divide. Mr. Hamburger noted that breakaway advisers have more options in joining existing RIA firms that have started in recent years. These are now "viable companies" to join as a partner or employee, he said. Contact adviser custodial firms to see what RIAs in a particular area might be suitable fits, Mr. Hobbs suggested.