When Changing Firms, What Questions Should You Be Asking?

Financial Professionals can count on changing firms at least once, if not multiple times during their career.  Outside of corporate mergers and acquisitions, FP’s often reach a tipping point that triggers the search for a new broker-dealer and/or RIA partner; frustrations with their current firm have piled up and they can’t take it any longer. 

I speak daily with FP’s looking for a change, and I often hear the same questions over and over.  Unfortunately, most of these questions involve strictly financials, and they don’t always help an FP identify the best partner for their practice.  I don’t fault the FP (and I used to be one for many years), I fault the industry for dangling money-carrots for the past few decades as the singular impetus to move.  FP’s have become programmed to seek the highest check, but they don’t understand the back-end economic ramifications that may negatively affect their bottom line once they are on board with the new firm.

Here is an easy example: A firm may provide a high gross payout and even a large check for the FP to move, but if that same firm is going to charge large affiliation fees and even larger platform fees, the FP’s bottom line quickly diminishes.

When speaking with FP’s who are evaluating our firm, two of the questions I consistently get are, “What is the payout?” and “Do you provide transition money?”  Certainly, these are important questions, however I want to challenge FP’s to look beyond the financials to truly and completely evaluate a different firm and whether it’s a good fit.  Below is a short-list of questions an FP may want to ask when he or she is looking at making a move to a new firm.

What is the ownership structure of the firm?

In today’s world of private equity, mergers and acquisitions, the last thing an FP wants to do is move to a new firm that sells soon thereafter. It’s important to know if the firm is privately owned and if so, what are the owner’s plans for the future? Is the firm owned by private equity? This is not always a negative, but PE ownership is likely to sell at some point, which means repapering all over again, in some cases. A publicly traded firm is well capitalized however their fiduciary duty lies with the shareholders and not the FP’s. Understand what you are joining because it will impact your practice in one way or another.

What are the costs to affiliate with your firm?

In addition to the payout, most firms have “core affiliation” fees just to be on board. They come in different forms but may be labeled as Tech fees, compliance fees, affiliation fees, etc. Understand what they are and how they compare to your current firm and the competition. Make sure you also understand every single fee the firm could potentially charge, fees they may not mention unless asked.

I manage my own client portfolios, is there an advisory-platform fee?

This is critical to know because as the industry continues to migrate towards fee-based investment management, more and more FP’s are managing their own models on behalf of their clients. Many firms have a platform fee that may range from 2-25 basis points. This fee alone, may have a tremendous negative drag on your practice’s bottom line. Ask this question!

How often does your firm on-board FP’s?

You can also add, does your firm have a dedicated transitions team and how experienced are they? Understanding if your new partner firm has a deep understanding of repapering client accounts and moving practices can be a game changer to your success. Don’t be the guinea pig or one of very few who have moved to a given firm, as it could be a nightmare.

Is your firm selective in who they bring aboard?

Simply put, it only takes a few bad apples to bring down a firm within financial services these days. If a firm is so anxious to bring on Advisors that they’re willing to overlook some past (or even current) regulatory red flags to win the business, this could impact the firm and you.

How many FP’s have you lost in the past year?

The answer you receive could offer a glimpse into a negative culture or fundamental flaws at a firm. Happy financial professionals don’t often leave their firm.

How many custodians can I access?

Having “choice” in how you serve your clients is important because it means you are not restricted. Having the ability to use more than one custodian can provide competitive pricing advantages and it also can potentially help win new business if you come across a new prospective client who wants to work with you but is not willing to leave a certain institution; they may just love those statements!

I want to add FP’s to my practice, will you help?

This is a conversation I have often with FP’s these days. Collaboration and scale are becoming very important to FP’s as they want to build something larger than just themselves. You don’t want to have to compete with your own firm when it comes to recruiting. The right firm should absolutely be willing to assist you with time and tools.

This list is by no means all encompassing, but it provides a solid starting point when evaluating a new firm. As mentioned above, these questions can and will foster deeper conversation and provide a true understanding of the potential strength of partnership with the new firm.  After all, knowledge is power!