The time for a smooth transition from one company to another is not after the move, it's before. If you haven't been building a book with strong relationships, haven't perform the proper research into the portability of your book at the new hiring firm and haven't had access to a great transition team, you stand to lose a good portion of your book in the move.
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.
David's transfer team wasn't what he was promised, either, and many issues from needless mistakes arose. Easy tasks went horribly wrong from having no business cards to hand out to clients and prospects to the ACATs not being mailed out with the proper information in them. This mistake cost weeks in the transfer process.
In a business that has so much innate volatility, clients want their financial adviser to be detail oriented and make things run smoothly. When that advisor doesn't, they question if he or she is the right person to handle their life savings.
Even the easiest of transfers run into glitches. It's a working rule, though, that the less glitches, the better, and that an excellent transition team is essential when you need things done perfectly.
Be sure and meet the transfer team before you start and get some references. Listen to their strategy and take notes. You want to make sure it all gets done. Talk to another advisor in the office about their transfer experience. Managers aren't too quick to have you speak with someone who's had a poor experience, so make sure you take notes on who the good transfer team members are and request that they help assist you. Moreover, make sure that they will be available to stay a couple of extra weeks if need be. All too often, the transfer team has only been hired for a week or two when actually three weeks are needed.
Finally, David's attorney didn't have any compliance or brokerage experience. He was a family friend who had some contractual experience, but nothing in the securities industry. David lost a couple weeks in registration purgatory due to a mishap with his resignation letter.
When it comes to staying out of hot water with the regulatory agencies before, during and after a move, you always need a good lawyer with plenty of regulatory experience. When I asked securities lawyer, Jennifer Woods Burke, president of CompliGuide LLC, she says: "Your brother's mother-in-law's nephew from her second marriage is not the attorney who should be vetting this process for you. Nor should you rely on the [trust and estates] attorney that refers clients to you. Leave it to the pros, because when you don't, it can cost you big."
Woods Burke explains that "aside from all of the contractual and regulatory obligations, there are practical considerations that only an industry insider would know." She adds that without proper guidance, you may find yourself at a firm where the compliance program is completely at odds with your practice. Views vary widely throughout the Street-from outside business activities, advertising, social media and office locations. The key to a great relationship with your new firm is understanding what the compliance obligations are before you get there.
Likewise, failing to look at and cure the skeletons in your own closet before you transition can result in an expensive mistake. Even the smallest blemish can hold up your transfer unless it is handled appropriately and aggressively from the start. While you may not need to know all the details, it really helps to have an attorney versed in securities practice representing you. Furthermore, you need independent people on your side. Be it a recruiter or a lawyer, someone has to be looking out for you.
David could have avoided most of his issues. But it was the combination of all of them that caused such a drastic book reduction. Let's all learn from where he's gone wrong. Whether it's service and advice or the lack thereof, due diligence on a hiring firm's platform, a good transition team or an excellent lawyer; it takes a great deal of knowledge and a small army of experts to get it right. Treat your business and your clients with the respect and detail they deserve and you won't be singing the blues like David!
Carri Degenhardt-Burke runs Degenhardt Consulting in
Jersey City, N.J. For further information, call
201-395-0222 or visit www.degenhardtconsulting.com.