Top 3 Land Mines to Avoid When Changing Firms
1. A Misaligned Business Model:
Advisors serve client niches and don’t try to be all things to all clients, as do firms. More and more Financial Advisors are serving client niches and finding a great deal of success in being a specialist to their clients. Some Advisors cater to small business owners setting up for a liquidity event, while others serve neurosurgeons and not physicians as a whole. The advanced planning a neurosurgeon requires is different than that of a college professor.
Many firms are also going after a specific segment of the Advisor population and have created elaborate infrastructure to provide the highest level of support. This support is necessary to not only provide the means for the Advisor to run an efficient practice, but to be able to spend more time growing their niche, and less on the minutia of running the business. For example, Advisory teams should seek a multi-custodial RIA, Retirement-Plan Advisors should have access to an ERISA attorney and bond traders should have access to a capable desk.
If a firm is currently serving Advisors with similar client needs, business mix, and practice size, they could potentially be a good fit. Additionally, have they transitioned other Advisor teams from your current firm successfully, and do they have the tools and human capital in place to help you get to the next level? After all, you are making the change because you feel that you have outgrown your current firm, probably for a few different reasons. This alone warrants the effort in identifying a firm whose team who has been in your shoes before.
2. The Smoke and Mirrors Behind Payout and Transition Capital:
The economics of making a change are an extremely important part of the conversation and factor in your ultimate decision, but there is more to the story. Payout is far more important than “up front money” in the long-term relationship between an Advisor and his/her firm and really, they shouldn’t be in the same conversation. Understand variable and fixed costs that will be part of the equation, in addition to trading and platform fees, and add-on costs for items that otherwise may be included elsewhere.
Transition capital can be beneficial as income replacement while you are moving clients, especially during the first 30-60 days. Understand the parameters of receiving this capital, which is usually in the form of a note. Revenue or asset retention targets may also play into receiving the full amount. If this is the case, it means 100% of your capital will not be delivered up front.
If you are currently under contract you may be on the hook to your current firm if you leave them. Know what you are walking into and equally important, away from. The proper legal and/or compliance resources and experts exist to provide this critical guidance.
3. Is the recruiter paying you lip service or does that steak have some meat?
Any firm that you speak with will tell you they are service driven and have industry leading technology. Dig in deeper to understand the service model so when you or your staff has questions, or need trouble shooting you will receive the correct answer on the first try. Basic needs like knowing how to access client-account paperwork or more sophisticated needs such as who to contact to evaluate your top client’s advanced planning needs, are essential.
An important conversation Advisors breaking away from a wirehouse or regional firm must have is office space. Access to expertise in this field will guide you through the identification, negotiation and build-out of your new office. If a build out is involved, you want experience on your side. If a firm is large enough, there may be an existing Advisor or team within your area that has available office space.
If the firm’s dedicated technology team isn’t properly credentialed or funded, the tech needs will not keep pace with your business. Or worse, do they not even have a dedicated tech team? If you do not have full access to a wealth management team who can provide sound strategy and guidance to assist in your own portfolio management or provide turnkey model portfolios on your behalf, you are not leveraging resources that should be in place. Ask if the firm will provide complete financial planning services, and if so, are those preparing the deliverable, CFP’s®?
Avoiding these 3 top land mines will help you successfully transition your practice. Being aligned with a firm more closely interested in partnering with you will help ensure long-term success.