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Moving Client Assets: The Good, the Bad and the Ugly

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There’s a lot to be said about transferring assets under management — and some of it ain’t pretty.

The Good

Today, if you’re a traditional broker who sells stocks, bonds and mutual funds, you’re truly in the catbird seat when it comes to transporting client assets.

There are virtually no operational impediments to bringing your book elsewhere.

The ACATS system automatically transfers stock positions and bond holdings. Margin accounts move with no effort required either by the broker or the client. The new firm simply pays off the old balance and sets up a new account.

There may be some unique house rules for margin on concentrated positions or low-priced stock, so these accounts need to be reviewed in advance. The ease of transporting this type of business makes the stock or bond jockey able to hit the bid elsewhere with few complications.

Firms all have selling agreements with major mutual fund companies, so there are rarely any issues here. There are far fewer in-house funds these days. Advisors generally don’t sell proprietary funds unless their performance is exceptional, so mutual fund portability is usually not an issue.

In some cases wirehouse executives have actually set things up to allow their funds to be moved to other firms; they don’t want loose assets if the departing broker takes his clients out of the funds, and they want to avoid the reputational damage of client disputes.

One caveat: Advisors should check 12 -1 fee policies, as firms may differ on how these fees are shared amongst firm, broker and client. It appears that regulators at some point may disallow these fees, so this concern could soon become moot.

Insurance and annuities are a simple open-and-shut case. Advisors need to check in advance to find out if the prospective firm has selling agreements with their insurance companies and that these agreements cover the specific products they sell.

Broker as Portfolio Manager Accounts deserve the Five-Star Travel Award.The mix of stocks, bonds, ETF’s and funds are hassle free to move.

The Not As Good

Moving retail separately managed accounts can make you feel like you’ve got sticky gum on the bottom of your shoe. You’d like to say goodbye to the old firm, but they just won’t let you make a clean break!

Unless the new firm has the exact same portfolios available, you’ll need to either consider setting up a dual- contract relationship with the manager or find another manager in the same asset class.

Asset managers usually have higher minimums and charge higher fees to clients in dual-contract programs. Unless the amount of assets that you’re bringing is quite significant, money-management firms are not likely to be interested in the expense of setting up a special “one-off “contract.

We find that advisors in this situation typically choose new SMA managers and then work to minimize adverse tax consequences to clients. Fortunately, there is considerable overlap amongst SMA managers at major wirehouses. It’s largely a game with the same 25 or so players.

Transferring assets in unified managed accounts is an even stickier problem. These are not standardized, commoditized offerings, and the product itself is relatively new.

Asset classes in UMAs may vary greatly between firms. For example, some have sleeves with managed futures and/or inflation-protected bonds, while others are more basic.

Advisors need to review both the asset classes at the prospective firm and the investment options within each one.

The UMA itself is not a product that can be moved via the ACATS system. Instead, each holding must be transferred to the new firm and then reassembled there. Some products may fit into the UMA, but others may need to be held in non-UMA accounts.

It’s a bit like taking apart a Tinker Toy, reassembling the toy at another playground and finding out that the new playground rules require that you play with a slightly different set of Tinker Toy parts.

While wirehouse execs feel that UMAs benefit clients, it’s not lost on them, however, that the extra effort required to transfer UMAs slows down broker movement. And they prefer brokers working in teams for the same reason.

The Bad

Alternative Investments: Most advisors utilize ’40 Act funds and ETFs to give clients exposure to alternative assets classes. These are like mutual funds and stocks in their ease of transportability.

Funds of funds or individual hedge funds typically have selling agreements with only a few brokerage-firm sponsors. Lock-up periods may last from three to 12 months. Advisors can review client needs as these lock-up periods expire but may find these investments difficult to move.

The Ugly

Structured products: Most are proprietary and cannot be liquidated prior to the end of the term of the agreement. There is an over-the-counter market in which they can be sold. But, as a practical matter, bid-asked spreads are wide, so this is not feasible.

Private equity: The deals often have 10-year lock ups.

It’s in the client’s best interest to hold them for the required period for liquidity purposes and to get the potential back end kicker.

Remember: Clients respect advisors who leave good products intact and continue to monitor them at the new firm. This shows them that you have their best interests at heart.


Customization has its price: It’s good for your business but can make strategic career moves more challenging to undertake.


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