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When Financial Professionals Go Indie Weighing becoming independent asset manager or financial advisor? Balance the freedom to serve customers against the strain of running a firm.

By Kent Croft and Mark Travis

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Illustration © Daniel Hertzberg

In a crowded field like asset management, starting a new firm presents unique challenges and notable benefits.

Many large financial services firms have impressive market shares, extensive lineups of investment products and financial reserves, but they face potential downsides, too. Big financial firms are saddled with numerous committees, divisions and products, a situation that often results in a cumbersome decision-making process for customers, little client interaction and conflicts of interest.

In contrast, smaller asset management firms can provide financial professionals the freedom to offer independent advice to investors and concentrate on a single investment approach with a limited number of corresponding products.

Related: Starting a Business as a Financial Advisor

Enjoying the flexibility to focus on client service. Independent and specialized asset managers are not only able to focus on their firms' core expertise and offerings but may be more accessible to clients than their counterparts at household names. The ability to respond immediately to client concerns can be a key differentiator, and something clients will appreciate and remember.

While smaller asset management firms can offer financial professionals a more independent and client-centric alternative than a previous engagement at a large company, running a team or division at a large firm is very different from running a whole company. Therefore not every investment manager should start his or her own practice.

Asset managers seriously considering starting their own practices need to think about the time, expenses, stress and learning involved. Speaking with entrepreneurial asset managers can help them appreciate how rocky the road can be. Asset managers who feel ill-equipped to meet the varied responsibilities of a business owner are probably better off remaining employed by a large company.

Tackling the challenges of starting a business. But even wealth managers willing to make the personal and financial commitments of an entrepreneur can find it difficult to be responsible for all aspects of a business. The asset manager who starts his or her own practice has to not only oversee fund portfolios and client accounts, but procure office space, order supplies, furniture and technology, coordinate advertising and marketing initiatives, hire and pay employees and handle numerous other details that they previously did not face. Plus, asset managers can't start their own businesses without obtaining from the Financial Industry Regulatory Authority a Series 24 license that will allow them to supervise and manage activities at a financial services shop.

Entrepreneurial asset managers might consider hiring an office manager to help ease some of the stress associated with the early stages of a new business. Teaming up with trusted partners at the outset can also make the journey less overwhelming and create the foundation for a company with long-term potential.

Related: 4 Steps to Building a Culture of Accountability

Candidates for employment at the new firm should share the values at the core of its culture, such as a similar commitment to clients. The key to building and maintaining close-knit, loyal teams is to treat employees like co-owners, so that they know their contributions are appreciated and can feel part of an important venture.

Standing out from rivals. Due to the crowded nature of the wealth management space, entrepreneurs need to work extra hard to distinguish themselves from the competition. Hiring a public relations or marketing consultant can help with clearly communicating why their investment strategies and products are unique and make it easier to reach out to the media.

Wealth management practices can't get off the ground without a reliable broker-dealer to manage trades. Besides leveraging existing relationships with broker-dealers they previously worked with, asset managers should conduct thorough background checks of other potential broker-dealers, =researching their investment in technology upgrades, the depth and breadth of the resources they have available and whether they participate in professional education programs.

Even if former clients do not feel comfortable following financial advisors who start their own firms, keeping in touch with them can be valuable for the new business. Remember, former clients may change their minds later on.

Related: Why You Shouldn't Take Business Advice From Your CPA

Kent Croft is president and co-portfolio manager of Baltimore-based Croft Investment Management, which he founded with his father. Previously he was a manager in the equity department at Salomon Brothers. Mark Travis is president, CEO and chief investment officer at Intrepid Capital Management, based in Jacksonville Beach, Fla. 

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