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Are the Benefits of Switching Firms Worth the Costs?

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What You Need to Know

  • For three out of four advisors in a Cerulli survey, the ability to build financial value is the top reason to change firms.
  • Unplanned client attrition and operational challenges are major concerns among advisors.
  • Cerulli found that advisors lose 19% of client assets, on average, when they change firm affiliations, on top of planned attrition.

Three in four advisors say the ability to build financial value is a top reason for changing firms and two in three say the main reasons are a desire for greater independence and unhappiness with senior management, according to research released Thursday by Cerulli Associates

But they also cite the risk of losing client assets, as well as challenges related to practice management, in their decision to move. 

Cerulli found that advisors lose 19% of client assets, on average, when they change firm affiliations, on top of planned attrition. Those who move from one independent firm to another report the biggest amount of planned attrition of assets under management.

“Unplanned client attrition is a significant concern among advisors, particularly those who consider breaking away to an independent channel,” Cerulli Associate Director Michael Rose said in a statement, noting, too, that rates of client attrition can vary considerably from one advisor practice to another. 

“It is critical that advisors perform an honest self-assessment of the strength of their client relationships, and the share of their client base that could be at risk as a result of breaking away,” he said.

Besides client attrition, 77% of advisors switching firms identify operational matters, 75% learning new technology systems and 71% lost revenue during the transition period as the top challenges they experienced. 

Cerulli said given that operational challenges, such as opening new accounts and processing account transfers, are the ones most cited by breakaway advisors, firms that invest in related technology and operational personnel are likely to have a major competitive advantage in advisor recruitment and retention.

“Many large firms are often better positioned to spread large investments in technology across a wider number of advisors and provide greater financial incentives,” Rose said.

Moreover, the pandemic could have long-term implications for streamlined account transitioning for newly recruited advisors, according to Cerulli. Over the past year, firms have been forced to deploy digital onboarding processes and related technologies.

(Pictured: Michael Rose, associate director, wealth management, Cerulli)