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When Your Broker/Dealer Faces Crisis: Top Four Steps for Independent Advisors

Over the last two years in particular, we have witnessed a series of events that have been highly disruptive to a number of retail broker/dealers. From private equity takeovers and bankruptcies, to multimillion-dollar compliance fines and class-action lawsuits, the b/d space has been knocked around quite a bit. When you add regulatory anxieties and consolidation fears to this mix, you produce an atmosphere that is driven by fear, especially among independent advisors concerned about the future of their businesses when their b/d is in crisis mode.

And, no big surprise, certain third-party recruiters love to play on these fears. Just like the proverbial ambulance-chasing personal injury lawyer, some third-party recruiters specialize in very aggressively targeting the independent advisors affiliated with a firm that is commanding its share of negative news headlines. Their message is invariably the same: "Your broker/dealer is going down the tubes. All is lost over there. Leave now before it’s too late."

It's easy to fall into the trap of listening to these panic merchants, but independent advisors owe it to their clients and businesses to take a step back when their IBD is facing an uncertain situation of any kind and approach next steps with a clear head.

While there are obviously going to be times when you may indeed need to change b/ds for the sake of your practice, here are the four key steps you need to follow with such an important decision:

1. Don’t panic, but start gathering informed perspectives. Just because there is a major event going on at your b/d doesn't necessarily mean that the worst-case scenario of a shutdown is going to occur. There will be a flurry of information coming to you from your b/d, from press coverage and from industry consultants and influencers. One thing you can definitely expect in this type of situation is that any immediate information you receive from any single source will be, at best, only partially true. So when your b/d faces a disruptive event, you should start by listening carefully to all of the more informed voices, and then develop your own opinion based on the widest spectrum of credible sources out there.

2. Demand more communication from your b/d. Information and communication are calming. When the markets are in turmoil, just because clients aren’t calling doesn’t mean they aren’t thinking about their portfolios, which is why most advisors communicate more frequently with clients during turbulent markets. When an IBD faces difficult times, its advisors should expect the same approach. One major red flag indicating that the worst-case scenarios may be correct is a complete lack of communication from your b/d. But either way, not proactively seeking out information from your b/d places your business potentially at risk, as you won’t be prepared for the real consequences of a crisis situation.

3. Develop your Plan B, and think about it as your Plan B. The truth is, advisors frequently don’t know where to begin with any potential transition planning, and they certainly don’t want to change b/ds if they don’t have to. The point of developing a "Plan B" is to recognize that there are things beyond your control and you should be prepared. If done properly, developing such a plan shouldn’t be a distraction to running your business, but rather can be implemented on your own timeline in a way that helps you narrow down your choices from the hundreds of b/ds out there to a small handful without much effort. The most important benefit of developing a plan B is that it serves as a calming vehicle that helps you sleep at night, knowing that whatever lies ahead, you can avoid a fire drill scenario. Along the way, developing a plan B may also help you gain greater insights with respect to how your practice operates and how you can enhance your business.

4. Avoid the "broken record" doomsayers and focus on realistic consequences instead.  More often than not, your b/d won’t just go bust. And that’s good news for many advisors, who generally don't want to change firms. The best way to avoid the doomsayers who won’t add value to your decision-making process is to focus on information sources that can help you think through how the current situation could drive specific changes at your b/d going forward, and then think about whether or not you could live with those changes. For example, if an IBD has a gigantic SEC fine, you can be certain compliance will tighten. Can you live with that? Or if a private equity firm has purchased your IBD, another change of control event will almost definitely be coming within the next three to seven years. If you're comfortable with these potential changes, then it's a sign you may not need to transition.

At the end of the day, going through these steps may actually suggest to the advisor that a transition to a different b/d is the best next step. And then, it makes sense to dive deeper on key criteria ranging from better autonomy and payouts, to technology and services that best suit your business.

As any successful financial advisor knows, fear is a powerful motivation for their end clients to act in certain ways, but major decisions born out of fear are seldom positive over the long run. 

Independent advisors in particular would do well to bear this in mind when their b/d faces a disruptive or crisis situation and the recruiters call.

Jeff Nash is President and CEO of Nash Consulting Group LLC, a financial advisor consultancy serving broker/dealers, RIA firms and other independent financial advisor practices nationwide.

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