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Industry Spotlight > Broker Dealers

Greener Pastures

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Looking over the fence at other broker-dealer pastures is always a fun experience for financial advisors. An advisor at one firm might look longingly at a bank rep and think about the joys of never prospecting again. An independent rep might watch television and wonder why his firm is never mentioned on Squawk Box. A wirehouse rep might look at an independent rep and think, “What in the hell am I doing with a puny 38 percent payout?” The angst of wondering who might be better off is as much a national pastime for advisors as baseball is for the rest of us.

During the last bull market, every financial firm in the world decided that it needed to own a broker-dealer. The financial world saw a flurry of activity in this regard. It didn’t matter if these BDs were profitable or not, it was all about product distribution. Big independents, wanting to be bigger, jumped in and started snapping up any firms they could get their hands on. Insurance companies wanted in on the action as well. Nothing could stop this freight train . . . except a technology bubble.

Like the captain of a sinking ship, when you start taking on water, sometimes the only thing you can do is start bailing. As profits went away and bills started piling up, many firms were suddenly back on the market looking for a buyer. Add in the increased costs of compliance and suddenly hardly anyone wanted to be in the broker-dealer business.

Today, the activity around broker-dealers is still in full motion. Companies are going out of business. Others are being sold, and some are merging. While this may be exciting for the financial writer, for the financial advisor it can be pretty darn frightening.

Of course, wondering is one thing; being pushed is quite another. As a recruiter, I always caution reps to take their time in picking a broker-dealer. Picking a BD is often as important a decision as picking a spouse. If you’ve been married, then you know you only want to go through that maybe three or four times in your life, at the most.

So what happens when you’re sitting on the fence admiring the pasture on the other side and you suddenly get pushed over? I talked to an advisor the other day who was told his broker-dealer was going out of business and he had to find a new home in less than a week. Can you imagine finding a spouse in less than a week? Not to mention one who’s in your price range and doesn’t have too much mileage?

Another advisor told me about making the leap only to find out he hadn’t checked out all the details — mainly, the termination fees from his former clearing firm — before he started grazing on the other side. His bill to move was more than $10,000. Then there was the advisor who told me about carefully picking his new BD and nurturing his clients through the transition only to have his BD sold a year later. He sounded a touch suicidal as he talked about having to move to three different clearing firms in less than a year and a half. Ouch!

Apparently, no matter how much you prepare, those greener pastures may not be as lush and tasty as you might have hoped. Then again, I’ve talked to many a broker who said the hay was delicious and changing broker-dealers was the best thing they ever did. I guess it depends on where you’re sitting and whether or not there are handprints all over your back.

The next time you find yourself fantasizing about greener pastures, you might want to take a quick look over your shoulder and make sure you’re hanging on tight.

Once a mildly amusing comedian, Bill Miller now works as a recruiter for a top independent broker-dealer; reach him at [email protected].


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