By Michael Wursthorn

Oct. 7, 2015 8:00 a.m. ET

For financial advisers who launch their own independent practices, having equity is king.

Those ownership stakes are very different from the shares many held in big securities firms that previously employed them. The private-company equity comes with big advantages but also risks.

During the financial crisis, brokers at the major brokerage firms suffered a steep drop in a key portion of their compensation: the value of the shares they were given in those firms. Since then, some brokers say they generally have less interest in receiving shares in the firms they work for, instead favoring higher cash payouts, if possible.

But that attitude is being put aside by brokers who are taking flight from the big firms to launch their own practices or who join one already established. In fact, the allure of an ownership stake in a private practice is helping to push more advisers to join the growing number of so-called breakaway brokers.

Darren Henderson is one such adviser who, in 2008, watched as his Merrill Lynch stock dropped in value as toxic mortgage securities took their toll on the firm. Even after its acquisition by Bank of America Corp. in 2009, brokers had to cope with the bank’s depressed stock price, which has yet to reach its precrisis peak, and the influence of its other major business units.

“When you pay advisers in equity, that’s fine and great,” says Mr. Henderson. “But that equity is tied to completely unrelated businesses…such as mortgages and banking.”

Mr. Henderson and six other advisers he worked with left Merrill in September to form a $3.3 billion independent wealth-management firm, one of the biggest launches of a registered investment advisory practice this year. Each of the advisers has an ownership interest in the new Corient Capital Partners in Newport Beach, Calif. And Mr. Henderson hopes that equity will do what Merrill’s stock couldn’t in its final years: grow significantly and create real wealth.

“For us, the idea of saying, ‘Let’s do what we do and tie our destiny to this business,’ is exciting,” Mr. Henderson says.

The channel of independent advisers has slowly taken market share away from the U.S.’s biggest brokerages: Merrill Lynch, Morgan Stanley, UBS Wealth Management Americas and Wells Fargo Advisors. Before the financial crisis, those firms held about half of all retail brokerage assets, according to research firm Cerulli Associates. At the end of 2014, their share fell to 41% of all assets, and, before the decade’s end, independent firms will edge ahead of the major brokerages, Cerulli predicts.

The top-producing brokers who go independent—like Mr. Henderson—typically turn down lucrative signing bonuses offered by rival firms that can pay as much as 350% of the fees and commissions they generate annually. Several brokers say those checks don’t equal the potential payoff in having an ownership stake in a firm that has the potential to grow significantly.

“A lot of advisers knew older guys who created genuine wealth with their brokerage stock,” says Tony Sirianni, managing partner of consulting firm Sirianni Strategy Group. At the largest firms, he believes “the chance to make that triple or quadruple bagger is gone,” in light of the weak stock performance of recent years and the companies’ maturity and size. By contrast, with smaller firms, he says, “advisers can get equity that’s potentially life-altering again.”

Michael Maurer says equity in his Steward Partners Global Advisory LLC, launched two years ago, has been critical in signing 20 advisers who manage a total of $1.8 billion in client assets and generate more than $15 million in annual fees and commissions. He says the firm aims to continue recruiting advisers to eventually hit $100 million in recruited revenue. If it does, advisers who have equity in Steward will reap the benefits.

“We’re extremely transparent with advisers. They all see our operating agreement and progress,” Mr. Maurer says. “They can see it, feel it and touch it and they’re not worried about our research department imploding or one of our departments creating a derivative.” Such risks, which affected some shareholders of the biggest securities firms, have “been eliminated from the equity game,” he says.

But the equity in private, independent firms is unlike stock in a public company. Terms, such as liquidity and valuations, are set by the firm’s principal owners and can vary from practice to practice since these are private securities.

David Mrazik, an attorney with MarketCounsel who counsels advisers going independent, says he tell advisers who plan to join an independent firm to ask how the valuation is determined and whether a third party evaluates it. Smaller firms may use their own good-faith estimate of the company’s value, making it more necessary for advisers to ask how revenue and profitability are factored into that.

The type of client can affect the firm’s valuation. For example, a firm with mostly older clients or a narrow focus may be valued lower than a practice with clients across a range of age groups and more diversified offerings.

On liquidity, Mr. Mrazik says advisers need to ask if there is plan in place that offers liquidity to stakeholders at some regular interval. Also, they should ask what happens in a situation where a firm buys another practice or sells itself.

“How and on what time frame can you monetize that [equity]?” is a key question to ask when going independent, Mr. Mrazik says. It is a question many advisers don’t home in on, said Mr. Maurer of Steward Partners, who added that the problem tends to be that advisers “don’t know what to ask” when they consider going independent.

Financial-services firm United Capital Financial Advisers LLC gives advisers an opportunity each year to cash in some of their equity. A number of its 134 advisers have redeemed some of their stakes for cash, but choose to hold on to most, if not all, of their positions in the hope of participating in the firm’s future growth, says Joe Duran, the firm’s chief executive. Since its founding in 2005, United Capital’s equity value has increased more than four times, he says.

“Some of them have sold enough just to know it’s real,” Mr. Duran said. “And many want to hold on for the long run.”

Corrections & Amplifications:
David Mrazik is an attorney with MarketCounsel who counsels advisers going independent. An earlier version of this article incorrectly spelled his last name as Mzazik. (Oct. 7)

Write to Michael Wursthorn at michael.wursthorn@wsj.com