The last two years have seen a rash of acquisitions in the broker/dealer world, and more are sure to come. It's no secret that the resulting upheaval makes many advisors think about switching firms. But is that always the wisest choice? It depends.
Reports from legacy Advest, Piper Jaffray, Legg Mason and McDonald investment advisors suggest that after the initial hassle of transition, many reps are left with a firm possessing greater resources, more sophisticated technology, a name that offers more cache and access to better intellectual capital. One legacy Legg Mason advisor says he's thrilled to have access to Citigroup's lending and banking platform, and that almost all of his clients feel better about Smith Barney than they ever did about Legg. That said, he also says he has been forced to “eat” some fees that would ordinarily be passed along to clients so that they won't feel they are bearing the cost of this acquisition. And he finds Smith Barney much less flexible than Legg Mason was. Still, his new firm hasn't broken a promise yet. So for now, he's staying put.
But financial advisors whose firms are acquired often have more serious complaints, including:
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Management Changes: Local, regional and district changes often result due to duplication of offices in many markets.
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Compensation and Benefits: Deferred compensation and grid payouts can change significantly as the merging firms seek acceptable middle ground.
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Support Staff: Many advisors are forced to share administrative staff when they didn't previously.
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Job Security and Productivity Expectations: Changes in management may mean increased productivity expectations, and “penalty box” grid payouts for lower-producing advisors. Average production at most major firms hovers around $500,000, and advisors who produce less can really feel the pressure. (By contrast, their larger producing colleagues may actually receive increases in pay.)
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Loss of Entrepreneurial Spirit: Some advisors who worked in a regional culture where they were free to run their businesses without restrictions say they have a tough time adjusting to the large wirehouse environment.
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Office Contractions: Regional firms often have many branch offices in small markets with just a few brokers each. Conversely, wirehouses believe that this model is inefficient, leading to the closing of many of these offices.
Explore Your Options
Ultimately, this recruiter believes “if it ain't broke, don't fix it.” If you are content at your firm, and believe that the enhancements that a larger firm will bring you will help you to grow your business, then collecting a retention check for just staying put might be your best alternative.
The point is you won't know for sure until you carefully examine your options. Indeed, an acquisition can serve as an excellent opportunity for an advisor to reassess his career and his business. He can examine whether the improvements promised can actually be counted on, whether they will enhance his practice and what kinds of problems he might face. He should be able to answer questions like, What does the acquiring firm's typical rep look like? What will the advisor's accessibility to upper management, traders and product specialists look like? How much autonomy will he have? Will there be increased fees for his clients? Will there be pressure to sell proprietary products? Will his payout change, and will there be ticket charges? Will they allow him to continue to cover his institutional accounts?
Of course, these are all the same probing questions that an advisor could simultaneously be asking competitive firms. In fact, the period of time from when a merger is announced until the deal is consummated is a great time for an advisor to take a close look at rival offers. After all, in today's recruiting environment, if he is even a relatively successful advisor, he will likely have recruiters calling him off the hook (and possibly offering enormous transition packages). He may as well hear them out.
Further, during this window, it is the ideal time for an advisor to contact each and every one of his clients to talk about the proposed merger and its effects upon them, as well as “take their temperature” regarding the change. This simple (yet critical) exercise can be the greatest motivator to an advisor who is experiencing any hesitation about undertaking exploration. If the answer is less than positive, it is almost surely time to move on.
Writer's BIO: Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting www.diamondrecruiter.com