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Pitfalls for breakaways when picking their first independent office – Financial Planning

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As more financial advisors strike out on their own to build an independent practice, they can easily overlook a big part of the move: finding the right office space.

Pamela Stross is CEO of the consulting firm TruClarity.

The process is challenging for any new business, but for financial advisors leaving larger firms, there are unique issues that need to be carefully considered. Finding an office that fits their day-to-day physical needs is only half the battle.

Here are three ways emancipating financial advisors can avoid common pitfalls that crop up when seeking new office space as part of a transition plan.

First, don’t breach your duty of loyalty or any confidentiality clauses with your current firm.

If an advisor has a client in the areas of commercial real estate business, office furniture, interior decorating, it may feel completely natural for the advisor to ask for help locating in creating their new office space. Unfortunately, this kind of disclosure their intentions may very likely violate the advisor’s duty to his or her employer.

Advisors must not inform clients of any plans to move. If they do, not only will they breach a confidentiality owed to their current firm, but it can mean that their firm inadvertently discovers their plans to leave. If a firm can argue that the advisor has been disloyal while actively employed, this can open the door to a number of potential legal headaches and liabilities.

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If you anticipate needing more space down the line, remember that for every 250 square feet you add, you would be paying another $7,500 a year, at a minimum.

Advisors are obligated to work solely for their employers. They breach this loyalty when they spend work hours preparing for their move. That could include looking for real estate, watching new software demos and working with lawyers to iron out the details of a move.

Using a third party experienced in supporting advisors through the transition to independence, including the search for office space, can help them maintain integrity in their move. This support can include helping them find the right location, negotiating the lease terms and overseeing buildout of that space, including the selection of furnishings and artwork.

Second, select office space with attention to detail: The office where a financial advisor chooses to launch a practice can play a vital role in their long term future success. Location is very personal to the advisor and their clients. Other factors including size, layout, interior design and accessibility all matter.

At the outset, deciding how much space your practice will need along with a preferred location are the most important physical factors to consider. A team comprised of two advisors and one support person generally needs approximately 1,500 square feet. Each additional advisor would require an additional 150 to 250 of square feet, while an extra a support person would add 100 to 150 of square feet.

It is likely a landlord will require a five-year lease term — normally due to any buildout considerations. Three-year leases are out there, but not as common, so advisors need to plan carefully for their growth. In other words, the right space needs to accommodate a firm’s growth over potentially the next five years.

Lease rates throughout the country can range from $30 to $80 per square foot in a major metropolitan market. So if you anticipate needing more space down the line, keep in mind that for every 250 square feet you add, you would be paying another $7,500 a year, at a minimum.

Projecting space needs over a five year look ahead can be daunting, but this is where working with a third party skilled in this area is extremely valuable. All may not be lost. Whether it is having the ability to sub-lease if an advisor over estimated or having a first right of refusal on additional space they under estimated, there are possible solutions that can be taken in to consideration.

What an advisor does NOT want to have happen is to be hunting down new office space sooner than expected. This could mean incurring the cost of professional movers, downtime for the team as they relocate and the cost of updating regulatory filings and all printed material to reflect the new address.

Third, choose the right interior design.

Finally, interior layout is crucial. The look, feel and design of an office defines the brand of the practice. With that said, I’ve seen too many breakaways try to recreate a traditional Wall Street design in their new workspaces, mistakenly assuming this is the right way to create an image of legitimacy.

Instead, we recommend that advisors create a welcoming environment that reflects their brand, culture and the personalities of their team. In other instances, it makes sense to capture the essence of the community in which you are based.

For example, one team of advisors in Fort Lauderdale wanted a very South Florida look and feel, so they opted not to buy dark banking-style furniture. Given that they are great supporters of the local arts, they decided to showcase various artists in their community and rotate their art collections regularly.

Another team we have worked with in Florida is more conservative. As a result, they went with a traditional look, with a personal twist. One of the advisors repurposed the furnishings her father had custom made for his medical practice for use in her own business.

Overall, the space you select should be a statement about who you are as a firm. The preparatory work you do to find the right size and price space should make the most of your abilities as a planner. Lastly, the look and feel of the interior should make your clients feel comfortable. The care you take in establishing your new independent workspace offers an opportunity to set your new practice on the right path.


Pamela Stross

Pamela Stross

Pamela Stross is CEO of TruClarity, a consulting firm that helps advisors make the transition to independence with operational support and detailed help in finding and configuring the right real estate.

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