The Real Cost of Independence: What Advisors Pay to Run Their Practice

Introduction

Independence promises higher payouts, but gross payout doesn’t equal take-home pay. Advisors who focus only on the “headline” numbers risk missing the reality: independence means running a business, with all the expenses that come with it. Understanding those costs is the first step in making a smart transition decision.

Headline vs. Net Payout

• W2 models: Grid payout is usually in the 35%–50% range, with the firm covering overhead.

• Independent broker-dealers (IBDs): Gross payout often advertised at 85%–95%, but advisors cover their own expenses.

• Registered Investment Advisors (RIAs): Keep 100% of revenue, minus custodian and platform costs.

The real comparison comes after expenses are deducted.

Common Expenses for Independent Advisors

1. Staffing

   • Client service associates, admin support, paraplanners.

   • For a growing practice, staffing is often the single largest expense.

2. Technology

   • CRM, financial planning software, portfolio management, document storage.

   • Costs vary depending on whether you use a turnkey platform or build your own stack.

3. Office Space

   • Rent, utilities, furnishings, supplies.

   • Some independents go virtual, others prefer a traditional office.

4. Compliance & E&O

   • Licensing, annual audits, supervisory support, professional liability insurance.

5. Marketing & Branding

   • Website, communications, events, advertising.

   • Spending can be minimal or significant depending on growth goals.

Average Expense Ranges

Based on industry surveys (Fidelity, Pershing, and RIA benchmarking studies):

• Staffing: 15–25% of revenue

• Technology: 2–5%

• Office: 3–7%

• Compliance/E&O: 1–3%

• Marketing: 1–3%

Example Comparison

Scenario: Advisor producing $500K GDC.

• W2 Firm (40% grid):

  • $500K x 40% = $200K take-home (firm covers overhead).

• Independent (90% payout):

  • $500K x 90% = $450K gross to advisor.

  • Subtract ~$125K in expenses (staff, tech, office, compliance, marketing).

  • $325K net income.

Result: The independent advisor nets ~$125K more, plus retains control and builds equity in the practice.

Why Independence Still Wins Long-Term

• Control: You choose your tech, team, and client experience.

• Scalability: As revenue grows, expenses rise more slowly, improving margins.

• Equity: Independent practices can be sold, often for 2–3x recurring revenue, creating long-term wealth.

Conclusion

Independence isn’t free money — it’s running a business. But with smart planning, the economics typically favor independence over the long haul. Advisors who model their expenses carefully often find higher net income today and the added benefit of equity value tomorrow.

Next Step: Before making a move, build a pro forma budget. Compare your W2 take-home with your projected independent net, and decide if ownership is worth the leap.