When advisors consider transferring to a new broker-dealer, they are often so focused on remedying a contentious or otherwise difficult situation that they can be nearsighted to a host of important factors that will affect their overall happiness at a new firm. The universe of broker-dealers is large and diverse. Advisors looking to make a move are remiss not to investigate the following most overlooked, differentiating factors.
Financial Stability. The industry shake up of 2008 put many firms out of business, and left compliance issues and legal troubles on the table for many others. When shopping for a new broker-dealer, make sure the firm you choose can weather a storm should it be faced with arbitration or a prolonged down market. Safeguard yourself by asking for the BD’s excess net capital information–the difference between the minimum capital a firm is required to maintain to cover expenses and the amount it actually holds–and ensuring they have enough in reserves to cover any pending or current arbitration.
Regulatory Issues. In addition to checking a broker-dealer’s financial security, you’ll need to check for any pending arbitration against the firm on FINRA’s website. Compare pending and potential arbitration costs to the amount the broker-dealer has in excess net capital. A broker-dealer that has more on the line in pending arbitration costs than it does in excess net capital may be faced with trouble down the line.
Cultural Fit. Each independent broker-dealer has its own culture and personality; just how happy you’ll truly be with your new firm depends on how well your personalities and styles match. For example, a larger firm may be more financially stable and provide more access to products and services, yet may not provide the same of level of personalized service you’d receive at a smaller firm. A smaller firm may be less financially stable, but you’ll be more likely to speak with individuals who will get to know you by your name rather than your ID number and to have direct access to decision makers.
E&O Insurance. E&O policies are complex. While the costs of different policies vary, cost is not an indication of the quality or extent of coverage you’ll receive. Too many advisors are short sighted in looking only at policy cost and not at actual coverage. For example, some E&O insurance policies don’t include “prior acts” coverage, leaving you uncovered for anything that happened before you switched broker-dealers, even if you had coverage at your former BD. Should you be faced with arbitration, some broker-dealers’ coverage requires you pay their deductible in addition to your own, and many policies limit coverage to specific products.
Advisors who carefully consider and investigate these often overlooked factors can create a long-lasting, gratifying situation for themselves at a new firm. Choosing a new broker-dealer is a major career decision that begs careful investigation in order to make sure your next move is beneficial for you and your business.