Introduction

In 2005, Fidelity Institutional Wealth Services (Fidelity)

produced a white paper entitled Making the Move to an RIA,

which examined some of the reasons for the large increase

in the number of new Registered Investment Advisor (RIA)

firms being formed at that time.1 Registered representatives

from numerous channels were attracted to the freedom and

autonomy of becoming an RIA. They realized this model would

enable them to be completely independent from the larger,

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

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.

Options for Independence

Source: National Financial Broker and Advisor Sentiment IndexSM, 2008

Percentage likely to switch firms in the next 12 months

0%

5%

10%

20082007200620050

10

20

30

40

50

60

70

80

90

100

5%

15%

30%

9%

5%

9%

InsideWhy Go Independent? 2

New Avenues 3

Join an Established RIA 4

Partner with a Third Party 6

Start Your Own RIA Firm 8

Considerations for All Models 10

The Financial Picture 10

Summary 11

30% looking to go to the

independent RIA channel versus

15% the year before

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.

2

Clearly the scandals on Wall Street that have tarnished the brands of some of the biggest financial institutions have caused many registered representatives to rethink their current business model and future goals. At the same time, new options for going independent are making the move more appealing for those who may have dismissed the idea of starting their own firm in the past. Some of these options support both fee-based and commission income streams,3 also known as hybrid models. These models require registration with the Securities and Exchange Commission (SEC) for fee-based business and registration with the Financial Industry Regulatory Authority (FINRA) for commission-based business. In addition, a pact between several wirehouses, other broker-dealers, and RIA firms (called the Broker Protocol) is reducing the fear of legal action for registered representatives who move between members of the Protocol and follow specific guidelines regarding 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

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.

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.

Registered Investment Advisor (RIA) Firms are independent businesses providing

financial advice and investment solutions

to households and institutional investors,

such as endowments and pension funds. As

fiduciaries, they are legally bound to put the

interests of their clients first. In addition, they

charge fees for service typically based on

a percentage of assets under management

(AUM), rather than commissions. RIAs with

more than $30 million in AUM must register

with the SEC (RIAs with between $25 and $30

million in AUM may register with the SEC),

and those with less register at the state level.

3

Level of Ownership/Independence

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

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.

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.

4

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.

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

Join an Established RIA 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.

5

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 1Join A BouTiquE RiA FiRM AS An EMployEE

ExAmPlE 2Join A lARgE RiA FiRM AS A pARTnER

Business Model

■ You join the firm as an employee and work under their brand

■ You have minimal input on how the business is run

■ You adhere to the stated investment philosophy and general practices of the firm, and use the set of investments recommended by the firm's in-house research team

■ You offer a majority stake in your practice for a negotiated financial payout

■ You stay active in the business and transition ownership over time

■ You adhere to the firm’s investment philosophy and practices, with the flexibility to offer a range of investment choices

Economic Model

■ You receive a salary based on the ongoing level of AUM you support, with potential bonuses and other incentive compensation

■ The firm covers all of your fixed expenses

■ You may receive an up-front payment for joining the firm and share in revenues

■ The firm covers all of your fixed expenses and offers a retirement succession plan

Commission Business

■ This may be a fee-only firm and you may need to transition your commission business before joining

■ As an RIA and a broker-dealer, the firm handles your commission business

Transition Support

The firm:

■ 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

The firm:

■ 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 recognition for its brand

■ The firm has a marketing strategy focused on building brand recognition and promoting the strengths of senior team members

Services Offered

The firm provides:

■ 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

The firm provides:

■ 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.

6

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

“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

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.

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.”

“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

Partner with a Third Party

7

ExAmPlE 1pARTnER WiTH A THiRD pARTy

for a Fee

ExAmPlE 2pARTnER WiTH A THiRD pARTy

for a Fee and obtain an Equity Stake

Business Model

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

Economic Model

■ The fees you pay are based on a percentage of your ongoing revenues

■ The firm provides succession planning using industry standards for evaluating your business

■ The firm covers your office setup costs with no repayment; you pay a pro-rata share of expenses on an ongoing basis, and additional services and support 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 Business

■ You can handle your commission business through a broker-dealer with which the firm works

■ The RIA firm is also a broker-dealer, and will handle your commission business

Transition Support

The firm:

■ 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

The firm:

■ 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 Offered

The firm provides:

■ Access to technology for CRM, reporting, etc.

■ Centralized administrative services for compliance, technology, accounting, and HR

The firm provides:

■ Access to technology for CRM, reporting, etc.

■ Centralized administrative services for compliance, technology, accounting, and HR

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

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.

8

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

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.

Start Your Own RIA Firm

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.

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 1100% FEE-BASED

ExAmPlE 2HyBRiD MoDEl

Business Model

■ You start a firm that is 100% fee-based, leaving behind any commission business you have

■ 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

Economic Model

■ You charge a fee based on a percentage of AUM

■ You set this at 1% on all securities to be in line with industry averages

■ 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

Transition Support

■ You work with your custodian to understand and plan for all the steps involved in a successful transition

■ You are required to register with the SEC

■ 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

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

■ 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

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.

■ 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 Offered

■ You provide a range of services to your clients that meets the stated vision and business objectives of your firm

■ You provide a range of services to your clients that meets the stated vision and business objectives of your firm

9

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

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.

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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.

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 Estimator9 (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.

7 Aite Group, Wealth Management Goes Independent, 20098 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.

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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 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)

“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

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.

Source: Fidelity Investments’ Financial Advisor Economic Estimator, 2009This 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.

$0

$1.0

$2.0

$3.0

$4.0

$5.0

Year 10Year 9Year 8Year 7 Year 6Year 5Year 4Year 3Year 2Year 1

Years 1 2 3 4 5 6 7 8 9 10

($ in

mill

ions

)

Start an RIA Firm Wirehouse

Equity Value(if you sell in year 10)

$2.3M

$0.4M

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.

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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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.

Fidelity institutional Wealth Services

200 Seaport Boulevard, Z2B1

Boston, MA 02210

For more information please contact a dedicated Fidelity representative at 800-284-1675 or visit www.fiws.fidelity.com/becominganria.

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.