Changing firms is never an easy undertaking. It requires serious research and due diligence. So much so, that you'd think every person who makes a change would know exactly what he was getting in to. Alas, this isn't always the case. Here are stories about brokers who switched firms, and some tips on how they could have done it right.
Too Good to Be True
Joann moved from one wirehouse to another in January 2004. When she left, she was a rising star after just two years on the job. Hoping to expand her client base, she was enticed to become a junior partner to Rich, a high-profile top producer, who, she was told, had many celebrity clients.
Two years later her partnership had not materialized. Trouble was, there was no signed agreement, not even a letter of understanding, that she would become Rich's partner. And the promised roster of celebrity clients was, in fact, only a Rolodex of prospects. Further, a large portion of the revenue she generated was attributed to Rich. Her greatest concern, though, was that Rich had client issues that might mar or tarnish her U4. Numerous talks with management changed nothing.
Seven months ago, after doing her homework more carefully, Joann signed on at a bank and got what she had most wanted: a referral stream. She is back on track, doing well and convinced that better due diligence before her first move might have prevented her dismal two-year experience.
There are some simple ways to check out prospective employers and partners. For one, Joann should have insisted on speaking to other financial advisors in her prospective partner's office. She also should have requested a sit down with Rich's sales assistants who, it turns out, he treated poorly, and should have requested a letter of understanding with Rich (grounds for discussion when things went sour). And, she could have checked Rich's compliance record at nasd.org, where she would have discovered a number of marks on his U4 that were a clear sign of trouble.
Listen to Your Gut
Steve, tired of cold winters, moved from a large regional firm in the upper Midwest to a wirehouse in the sunny South. The large transition package he received didn't hurt, either. While he knew he wanted to become independent, he didn't have the nerve to do so. Now, in the second year of a six-year obligation, he realizes that he made a mistake.
And it was a doozy. Steve used the entirety of his signing bonus to build a luxury home. Unfortunately, the bonus was in the form of a multiyear, forgivable loan. After two years, he has only earned one-third of the upfront payment. By using the money before the end of his six-year contract, he spent it before it was earned.
Although Steve's business is growing, he still regrets his decision. He finds the wirehouse to be inflexible with regard to the way he wants to grow his business. For example, he is limited in the way he can price his accounts and is frustrated by the slow response from management to his requests. His instinct to go independent has now become a burning desire that he cannot act upon, because, as he says, he “sold his soul to the devil.” Now he must work for four more years to “earn” the transition package money that he spent.
The moral of Steve's story is threefold: pay attention to your instincts; never spend what you have not earned; and remember that higher payouts and greater quality of life are far better compensation than the transition money you may get by going to a giant, national name.
Avoid Hasty Decisions
Jeremy, a five-year veteran with A.G. Edwards, was initially happy with his move to an independent broker/dealer. Then one of his large offshore clients began litigation against his firm. Because he was an independent contractor, his firm determined that it could force him to repay the legal fees (close to $50,000), even though he had not been named in the litigation. The firm began withholding his commissions to do so. Without much thought, he moved to a smaller unknown independent firm owned by a friend's family.
Jeremy's business has significantly diminished. His original trailing 12 of $350,000 on $35 million in assets under management has dropped to a trailing 12 of $225,000 and only $15 million in assets under management. In addition, his new b/d is giving him only a 50 percent payout and providing no sales or business support.
Because Jeremy had not been named in the offshore lawsuit, his U4 was clean. Although he might have felt pressure from his regional firm to resign, he could have taken the time to do appropriate due diligence. Moreover, had Jeremy talked with an attorney and reviewed his contract, he might have been able to negotiate down the payback total of legal fees to his firm. He let circumstances dictate his move rather than get the professional assistance he needed to make the best possible decision.
Jeremy also made one of the worst mistakes a broker changing firms can make: He never discussed leaving his independent b/d with his clients. Had he done so, he might have realized that many of them would not follow him to an inferior, unknown firm.
Be sure to look before you leap, seeking appropriate counsel along the way. No matter what the circumstances, there are appropriate firms that will support your career and your clients. But you have to make sure you've found it before you leap.
Writer's BIO: Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting www.diamondrecruiter.com