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When It Comes to Switching Broker-Dealers, Just Do It!

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He who hesitates is lost.

Once an advisor decides to leave a firm, the sooner he or she departs, the better. Procrastinating and postponing the move exposes the advisor to unnecessary risks.

Let me explain.

Once advisors decide to jump ship, their production typically drops. That’s because they no longer can work with the same level of intensity as before. The prospect of changing firms is a distraction from the total business focus that advisors must maintain in order to be successful.

The time spent out of the office kicking the tires at prospective firms is another drag on an advisor’s productivity. Once an advisor knows that they may be leaving, it’s hard for their gross production not to falter. That’s why many firms will lock in an advisor’s “trailing 12” for 60 days once they present them with an offer.

In strong bull markets, I’ve seen advisors with a long-term strategy successfully ramp up their businesses and then hit the bid elsewhere. But, of course, that’s more difficult to do in today’s volatile markets with lackluster returns. Many advisors are struggling to keep their gross production at previous levels.

Market volatility is another danger. Whipsawing markets can unnerve investors and cause them to back off from investing. An advisor who is suddenly overwhelmed with additional demands for client service is often too preoccupied to entertain a move.

Even worse, challenging markets can sometimes generate customer complaints. Once an advisor has an open legal issue, it’s no longer possible for him to move.

This is because prospective firms may need to wait until the matter is concluded to be able to make a hiring decision. Also, depending upon the severity of the accusations, regulators may require closure before approving a license transfer to a new firm.

I’ve seen advisors who were hit with bogus lawsuits have to postpone a desired move for more than a year until a customer complaint was resolved. If the arbitration was not resolved in their favor, they might have had to forgo a humongous recruiting package.

Advisors who already have some complaints on their Central Registration Depository (or CRD) records are most at risk. One additional item can sometimes be the tipping point in a prospective firm’s hiring decision.

I knew an advisor whose business had plateaued at a firm with an inferior platform. He was excited about joining a firm that was committed to opening up a branch in the locality where most of his clients lived. The prospective firm also was prepared to help him ramp up his business with a customized marketing program.

Meanwhile, engrossed in running his practice, he kept deferring a decision to join the new firm. An unexpected lawsuit from a disgruntled client kept him on the sidelines for more than a year.

The advisor said the client had refused to follow his advice and squandered her own money for which she later tried to blame him. Even though the suit was ultimately adjudicated in his favor, it prevented him from moving for more than a year. Plus, volatile markets during this time hurt his trailing 12-month gross production, reducing the size of the deal that he was finally offered.

To be clear, the due-diligence process that enables advisors to determine the best business model and firm platform for their moves should never be rushed.

Optimally, that means meeting with prospective firms’ product specialists, as well as talking with advisors at that firm who have a similar business profile. Test driving a prospective firm’s work station is also advisable.

But once an advisor has identified the right prospective firm and decided that it’s in his and his client’s interests to go there, unless there is a solid reason to postpone, dawdling is usually not a very good strategy.

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