John Wooden, ESPN Coach of the Century for his work in basketball at UCLA gave a speech called “Winners Make the Most Mistakes” and said:

“The team that makes the most mistakes will probably win. That may sound a bit odd, but there’s a great deal of truth in it. The doer makes mistakes. The individual who is mistake-free is also probably sitting around doing nothing. And that’s a very big mistake.”

I can say that Coach Wooden was right as I have certainly made a lot of my own mistakes along the way of being a “doer” in the industry.  There are many things I learned from building a sole practice at a wire-house with about $3 million in annual revenue, to building that practice into a large partnership at a wire-house, moving that practice between wire-houses, then moving to independence where I sold some equity to a Private Equity firm, and eventually transitioning my remaining ownership to the next generation of advisors in my firm that had billings around $10 million a year at my retirement.  In reference to Coach Wooden, I did a lot and learned a lot on my way through the challenges that were presented to me.  This paper presents the 10 most important items that I learned while moving my practice from a wire-house to independence.

  1. The biggest advantage of independence is not the extra income you will earn by not paying the “house.”  It is a combination of the massive difference in what you will receive for your life’s work in an exit strategy and the ability to grow your practice far more efficiently between now and then using M&A.
  2. The amount of time that would be spent “running the company” on items that were provided, or didn’t need to be worried about at a wire-house, was drastically underestimated.  It was made even more time consuming when that company had debt and Private Equity partners with strict reporting and operating standards that must be adhered to. This took at least 1 full-time, very senior, employee if not 1.5 full-time employees (FTE).
  3. The client experience (how a client interacts with his or her money re things like client statements, reporting, etc.) would be drastically different.  I didn’t say it was worse, but the amount of time spent orientating staff and clients to this, correcting mistakes, working with software vendors was drastically underestimated. It accounted for an additional FTE.
  4. The importance of having something that makes your firm unique without a major brand name behind you.  Generalist are less likely to be successful.
  5. Compliance is just as complicated outside a big wire-house and it would take a full-time person to deal with it. If you’re counting that is at least 2.5 extra FTE and their benefits.
  6. M&A sounds sexy but it takes a combination that is also very unusual to be successful.  You must have the 4 P’s:platform, people, performance, and profits.   Most firms I met never get much done even though they put lots of time into it.
  7. With that said, M&A is the single biggest category that can change your firm.  If your average account generates $20,000 in revenue and you can acquire a firm that does $1 million in revenue you would have to find and close 50 new clients to reach that. Not many firms do that each year. Unfortunately, it can destroy your firm as well if all partners are not on board.
  8. Independence is advanced ownership. You must want it bad.  It is not for those who want to balance lifestyle, family and work.  It is not for those corner office wire-house advisors who want to come to work at 9am and leave at 2pm.  The grass simply isn’t greener on the other side without a lot of hard work.
  9. Technology must be managed in the world of independence.  The need for a full-time technology person or at least part time will become apparent quickly as there are always new opportunities to improve what you are doing, problems with existing software or hardware, and the need for someone to be current.  For those of you counting we are up to 3-4 FTE in the new personnel department.  In short, you will have a new organization chart in the world of independence.
  10. There are lot of partners out there to help you.  Highly qualified people who can add great value but they also ALL want something. Knowing what each gets, how that will affect you 2, 5, and 10 years from now is critical and extremely hard to understand unless you have been there.

Here is the good news.  We have learned this and much more, we have stood in your shoes, we have made mistakes, and yes, we have had some successes.  But, more important we can help you know what we wished we had known.  We can help you see the things we wished we had seen so you can make the right decisions.  We are Lumina—a point of light on your business issues!


The opinions expressed are those of the Author and not Private Wealth.