As the competition for advisors heats up, with record transition packages, top advisors are changing jerseys at a fast pace. Certainly, it is tempting to be wooed by these outsized deals that have the potential to turn someone into a wealthy man or woman. But, when the motivation for such a move is being driven solely by personal financial gain, the long-range outcome can be disastrous. Here’s why:
- Whether you are currently held to the fiduciary or suitability standard, your clients trust that you are acting in their best interest—always. If monetizing your business is the only reason for switching firms, you risk breaching that covenant.
- Clients will always be able to “sniff out” an advisor whose motivation is money, instead of their clients. You put yourself at greater risk of losing your credibility and, ultimately, your clients.
- The Securities and Exchange Commission recently approved FINRA Rule 2273, which requires firms to send clients a notice in connection to recruitment practices and account transfers, effective Nov. 11. So when an advisor changes firms, their clients will receive a notice with key considerations for transferring assets to the recruiting firm and the direct and indirect impacts of such a transfer. That recommendation alone can be enough to make clients question something they never would have second-guessed before.
- It’s the wirehouses that pay the biggest deals. But what if a wirehouse doesn’t provide you or your clients the amount of freedom, flexibility and control you expect or deserve long term? What if you are really meant to do something more entrepreneurial and build your own independent firm? Will chasing the money cause you to wind up in a place that won’t feel soulful?
To be sure, the ability to take such meaningful chips off the table by accepting a recruiting deal can be powerfully seductive. And there is nothing wrong with doing so, provided the primary motivation for the move is client-driven.
Take Tim, a wirehouse advisor with a spectacular book of business generating more than $5 million in annual revenue. Surely, if he chooses to leave his firm, any wirehouse, regional or independent firm would love to have him—and the financial incentives being offered to him prove that. While he is seriously considering an eight-figure deal from another wirehouse, he knows the move won’t help him better serve his clients. And so, in order to sleep well each night, he is likely to either go independent or to a regional firm—options that will pay him much less in the short run, but will provide him greater peace of mind and credibility in the long term.
When the firm offering the biggest deal is also the one that you feel will allow you to serve your clients best, that’s the best scenario. Very often though, that’s not the case. While almost every advisor will entertain offers from the firms paying the biggest incentives, most wind up following their fiduciary responsibility to their clients, as that’s where they feel all interests will be best served in the long run.