Keeping your book of clients intact when switching firms has never been a cakewalk, but it sure isn’t getting any easier. Down markets—especially this one—aren’t exactly the best time to break news of a move to already panicked clients. More than ever, advisors should be prepared for a fight, whether they’re bailing for an RIA, an independent b/d or a wirehouse.
Advisors and recruiters estimate, on average, that anywhere from 60 percent to 90 percent of an advisor’s clients move with them to a new firm. Danny Sarch, founder of Leitner Sarch Consulting in White Plains, N.Y., says FAs trying to estimate their client retention potential only need “to be honest with themselves about how they got the client in the first place, and the nature of the relationship at the time of their move.”
If you lose a lot of clients, are the economics of a move worth it? One Merrill advisor cites a large team in his office that just accepted an offer from UBS for 260 percent of trailing 12-months production, but if they leave 40 percent of their book behind, that changes the math of the deal quite a bit, he says.
Timing is everything. Take this story told by one of our advisors from Registered Rep.’s forum. After 25 years at Morgan Stanley, advisor X resigned to go to Merrill Lynch. Advisor X left Morgan Stanley the Friday before Merrill Lynch announced the sale to Bank of America. He managed to move about 60 percent to 70 percent of the clients he wanted to keep in the end, but he ran into a number of stumbling blocks in the process. In addition to having to answer questions from clients such as, “Why do I want to move to Merrill Lynch, aren't they 'bankrupt'?", Advisor X’s income has suffered because clients were sluggish to make the move citing everything from, “Let’s wait till after the holidays” to, “Let's move but keep everything in cash until the market ‘recovers.’”
And then there are the legal risks—especially if the firms involved are not signatories to the broker protocol. A pact between several wirehouse, broker/dealer and RIA firms, the protocol stipulates that signatory firms will refrain from taking legal action against an advisor who takes basic client data with him when he moves to other signatory firm. “The protocol gives some clarification and guidance as how to go from one protocol firm to another,” says Stuart Meissner, a securities arbitration attorney at Stuard D. Meissner LLC. But if you’re not going to a protocol firm, “there is no guidance,” he says, “which means you have to be careful what you do—how you transfer clients over, how you solicit clients.” In addition to being careful about taking any paperwork or documents related to clients, Meissner says advisors who are moving should first review their employment contracts,and the extent to which any non-compete clauses in those agreements are enforceable.
Take Andrew Kaiser: When Kaiser left UBS in 2006 to launch his RIA, Mountain Hill Investment Partners in Atlantic Highlands, N.J., he says he was expecting a fight from his firm—and he got one. “The important thing to remember is that the firm believes brokers don’t own their own business when they move from firm to firm. The firm owns the business and they own the client—brokers will have to fight for it,” says Kaiser.
Kaiser says that when his clients in the fee-based program moved their accounts over to him, UBS charged them a full year’s fee (he moved in March)—a penalty stipulated under the small print in the contract the clients signed when they set up an account. “I talked to my clients and told them, ‘Here is what they are going to do to try to retain your business, here is what they are going to say, none of it is going to be nice, but you can follow me and make a judgment call and that is how we left it,” Kaiser says. In the end, he managed to keep 100 percent of the assets that he wanted to keep; some of his clients stayed at UBS, but he says they were either clients who didn’t contribute much revenue, or clients he no longer wanted.
If advisors are well prepared, they can have a successful move in a down market—even when they make a big move to independence. “Some reps may be reluctant to test their client loyalty,” says Bill McGovern, president of B/D Search, a consulting and recruiting firm based in St. Petersburg, Fla. “The other side of the story is that it is a great time to tell clients you’re making a change—‘we’re going to go do business a little different than we did in the past, we are not going to go follow the lead of the wirehouse firms.’ So I think it is a great time to sell the story about moving and becoming more independent if the brokers are willing to go there.”