A few years ago, I spoke with an advisor who had recently joined another broker-dealer. Prior to making his move, he had checked with the prospective broker-dealer to be sure the mutual funds he was using were on his new firm’s platform, and indeed they were.
But there was one problem — the funds weren’t approved for use in the Broker as Portfolio Manager program that he had worked with for years. It appeared that his new firm had simply made “an honest mistake,” but it was one that made it very difficult for him to service his clients properly without upending his business.
To prevent such a mishap, follow a three-step “trust, but verify” process:
1. Talk with home office product specialists. Advisors should schedule in-depth conversations with home office product specialists in key product areas. It’s helpful to take detailed notes, especially if interviewing at more than one firm.
For example, if an advisor uses outside managers, it’s important to verify not just that the managers are on the prospective firm’s platform, but that they also are available in the exact investment programs the advisor uses.
For example, if an advisor requires a particular mutual fund or SMA in the Broker as Portfolio Manager program, it’s important to verify that the fund is available in that program. Offerings in the UMA and mutual fund wrap programs should be evaluated separately.
Advisors should also obtain details on how products and platform fees are structured, so they can determine how much they’d likely charge clients at the prospective firm and how much they’d probably net.
Home office visits are often an excellent way to meet with product specialists at prospective firms. If an advisor is attending a group meeting, it’s useful to schedule separate meetings with any relevant product specialists not included in the group meeting. It’s also beneficial to keep the contact information of key product specialists.
Open items not covered in these initial meetings need to be addressed prior to the move. A more extensive round of due diligence will be scheduled once an advisor has decided to switch firms. Any issues with the transfer of investment products must be identified and planned for in advance of the move.
2. Talk with advisors at prospective firms. Advisors should speak with reps at the prospective firm who do similar types of business, including those at other branches. After all, you’re researching the prospective firm’s platform; these advisors have no vested interest in whether or not you join it. There’s no need for prospective advisors to share more than first names and the type of firm they are currently with in these conversations.
Advisors can focus their questions for advisors with the prospective firm on their experience with different products and technology. The more specific the questions, the better.
How available are home office product specialists? What do you have to do to set up a seminar? What resources are available? How long does it take compliance to approve a seminar? What do you like about this firm? What firm were you with before, and how does it compare? If you could change one thing about this firm, what would it be? What kind of advisors don’t really fit in here?
3. Test drive the prospective firm’s technology. How user friendly is it? Can advisors execute their investment programs easily? Advisors should make a list of the things that they normally do on their current firm’s workstation and compare it with what the prospective firm has to offer. Are there any additional capabilities that their current firm lacks?
A thorough due diligence process is critical to an advisor’s ability to select the right firm. This process should never be rushed. And of course, advisors shouldn’t neglect “big picture items” — such as the firm’s ongoing support for technology upgrades and its overall commitment to the wealth-management business.
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