The No. 1 Thing Advisors Want When They Switch Firms

“Consolidation has pushed advisors of independent BDs to look at RIA firms,” he says.

For Friedman and other recruiters, broker-dealer consolidation has brought a significant new aspect to their business: placing existing independent advisors with RIAs.

In the interview with Friedman, who has been an advisor with Lincoln Investment for 28 years and founded his recruiting firm 14 years ago, he maintains that despite RIAs’ strong growth, “BDs aren’t going away.”

Here are highlights of our conversation:

THINKADVISOR: Your company is called Broker Dealer Change. Why do advisors want to switch from one BD to another?

DERRICK FRIEDMAN: No. 1: Advisors want a business-friendly environment with the ability to grow their book and do so with an easy transition.

A business-friendly environment includes reasonable compliance, technology, flexibility with products the advisor can offer.

At the same time, they want a support staff and technology to be there to support their business growth. 

To what extent are BDs trying to meet the needs of advisors keen on switching?

Advisors have the strength to demand what they need — a business-friendly environment. If the BD doesn’t give it to them, they won’t continue to evolve, grow — exist. If the BD doesn’t evolve to what the advisor wants, it won’t succeed.

Has extensive industry consolidation affected advisors switching broker-dealers? 

There are fewer and fewer larger independent firms; it’s consolidated to 10 or 12 larger ones. But you still have an abundance of boutique firms that have 200 or under advisors.

LPL just bought Commonwealth. And [through the years], it will continue to grow. Since they’re self-clearing, they’re able to offer a low-cost, almost a Costco, environment. They have a low-cost platform, which is business-friendly for the advisor and the client.

Is there a trend to more independent advisors changing from one BD to another? 

Right now, yes. There was a pause this year for several months because of the uncertain economic climate and [President Donald Trump’s] tariffs.

So there was a slow, quiet period of uncertainty; and then it, kind of, passed.

Why are some advisors choosing to move to another BD rather than to an RIA, where they can have more freedom?

It’s simple: Because a lot of these financial advisors still have a fair amount of transactional business that they couldn’t continue to do if they went to an RIA.

They want the flexibility of continuing that business while growing their fee-based [business]. So hybrid is a prime option.

Are BDs paying upfront transition money to advisors who affiliate with them?

Absolutely. Today the multiples are higher than ever. Top talent demands top dollar. With all the consolidation in the industry, the firms now have the dollars — their pockets are deeper than ever. They realize that if they want top talent, they have to pay for it. It’s very competitive.

How critical is compensation in switching firms?

Payout is very important. It’s one of the factors, but it’s not the No.1 factor on which to base a decision. No. 1 is ease of doing business — the support the advisor gets.

A business-friendly environment provides the support, technology, compliance as well as low overhead, such as platform fees and clearing.

Are financial advisors looking to switch firms really unhappy?

If they’re not happy where they are now, their eyes are open. They’re opening their eyes to RIA firms as opposed to just looking at the independent BDs. They’re thinking: Do I choose an independent firm or a hybrid firm, or do I look at an RIA?

So they have relatively more choices now. Right?

Yes. If the choices are limited with the BDs, they’re looking at RIAs. The reason advisors go to an RIA is that there’s more flexibility. They can focus most of their time on fee-based business and [recommend investments] without restraint.

And they don’t have as much compliance weighing them down and holding up their business. They have a little bit more freedom.

That’s a bright scenario for advisors who want to move. Isn’t it?

Yes, the options have not dissipated; they’ve just rotated to a different channel.

Advisors are no longer hesitant about leaving. There’s no reservation. If they don’t feel comfortable and happy with their BD, they’re no longer staying.

What brought about this change in attitude?

They can transition their business to another BD or RIA more easily now than ever with Docusign [electronic signature] and other technology that facilitates going from one firm to another.

There are “fewer barriers” to moving, you’ve noted. What barriers, specifically?

Paperwork, for example: Repapering is much easier now with technology than it ever has been. It doesn’t take as much time to move clients. That’s a key factor.

Technology has made it easier to transfer from one firm to another, and that’s appealing to advisors.

It’s much easier for an advisor to pick up their book of business and move from one BD to another without a long pause. Time matters.

How has consolidation affected you as a recruiter?

It’s really ignited the RIA business for my firm. It’s opened up a totally different arena.

There are definitely fewer of the larger independents to choose from because of consolidation. So I think it’s pushed advisors with independent BDs to look at RIA firms.

So it’s significantly expanded your business as a recruiter, then?

It has. When one firm closes, another opens. Fewer options with the independents, many more options with the RIA firms to choose from — from both the advisor’s and recruiter’s viewpoint.

The RIAs are continuing to grow.

Are independent BDs going the way of …

They’re not going away. You aren’t going to have one, two or three firms. You may have 10 or 12 large independent firms as opposed to 30.

But they aren’t going away, though consolidation has really fueled the growth of RIA firms.