While the advisor in this example, "David" will be able to rebuild since he's done it before, why do it when you don't have to? Let's take a peek into David's world.
David parks himself on a suburban bar stool and pours his guts out to a long time friend over a muddled old-fashioned. Just like a scene from a Peter Paul and Mary concert as they bellow out "Where Have All the Flowers Gone?" he somberly asks: "Where have all my assets gone, long time passing?" His friend who is also in the business, replies with empathy: "Oh, when will you ever learn, when will you ever learn?"
David's book has been dwindling since he lost a few key clients in the transition from a wirehouse to a small Wall Street boutique. A year ago, his trailing-12 production was slightly over $800,000 and assets under management rested at $90 million.
Today, David is roughly at $550,000, with $47 million in assets. He's been in the business for nine years. He originally started as a client service associate and took over a portion of a retiring advisor's book.
While his book is mainly in managed money, David failed to perform quarterly reviews with his clients. Clients who had $500,000 with him never heard from him unless he needed a new signature for something. Even the clients with more than that heard very little.
While David had been the service and phone face man to many of those clients prior to being their advisor, he never turned his new role into anything more than their order taker. Sure, he would be nice on the phone and help if there was an issue with something, but the relationships never went further. He got himself into the business of giving financial advice and didn't.
When push comes to shove, moving can be a lot like swatting a bee hive. You don't want to do it unless you know you are properly protected and have taken all necessary precautions to calm down your colony. Even then, be prepared for the unexpected.
David didn't take an active interest in his clients and their lives, let alone their money with him. As a result, when he tried to move to a firm that he thought had more independence, clients were asked to sign this and sign that. They were asked to close out accounts and had issues with some transfer that they didn't ask for. Many key clients decided to either stay with the firm they knew and just be reassigned to a different client service associate, or they consolidated with another open account at a different firm.
At the same time, David's new hiring firm didn't have the vast platform and products that his old one did. While the payout seems much higher, the amount of actual business that he can do has gone down. As your clients' lives change, so should your book. David didn't take that into account when he was researching a new home. One of his larger clients called in for some life insurance proposals shortly after his move. Unfortunately, David's new firm didn't offer insurance as a product. As a result, the client went with his other financial advisor to get the insurance and ultimately transferred his whole account away.
I just received a call from a prospective candidate in Texas who knows this situation all too well. "Tara" is looking for a new home. She went from a respectable national brokerage firm to more of an independent insurance shop that is still nationally known. But when I ask her about the product offerings, she states, "I feel I cut off my left arm. I may be right handed, but I still use my left one, too."
But back to David. He could have avoided the whole product issue had he gotten in front of the right product and service people at the hiring firm. Most larger brokerage houses are quite careful with product due diligence, and his needs would have never slipped through the cracks with a firm plan in place. But smaller firms sometimes have people wearing many different hats. David's reputation suffered because of his combined issues of not actively servicing his clients and now not being able to sell them appropriate services and products.
