The Process

Ask five reps what they consider the most important feature at an independent broker/dealer and chances are they will give you five different answers. To put it simply, individual reps have individual needs. They have different ideal clients, technology requirements, fee structures, portfolio models the list goes on. More important, these needs can change as a rep's practice grows. And, at that point,

Ask five reps what they consider the most important feature at an independent broker/dealer and chances are they will give you five different answers. To put it simply, individual reps have individual needs. They have different ideal clients, technology requirements, fee structures, portfolio models — the list goes on. More important, these needs can change as a rep's practice grows. And, at that point, many of them decide it's time to move on to a new firm with better offerings.

In fact, about 11 percent of independent reps plan on switching b/ds within the next two years, according to the 2006 Moss Adams Financial Performance Study of Advisory Firms. There is an abundance of independent b/ds available to choose from. In fact, there are over 100 active independent b/ds with at least $50 million in revenue. And 25 percent of those planning on making the move from one independent b/d to another say it's because they want better support. The next most common reason? Greater flexibility.

But how can an advisor be sure to find a new independent b/d that is the right fit? With so many firms to choose from, how can a rep begin to narrow down his search? Philip Palaveev, a consultant with Moss Adams, says independent firms fit neatly into one of three categories. Large b/ds with a national reach, like, say, Commonwealth or LPL, are able to recruit nationally and tend to attract reps looking for growth. Smaller firms like, say, Next Financial, might be the place for those reps in search of more personal attention, Palaveev says. Then there are the insurance-owned b/ds for reps needing both an insurance and investment platform.

In Search of the Perfect Fit

While it's important for advisors to understand the differences between independent b/ds, it's also vital that a rep know exactly what he wants out of the switch. Take Kayvon Karoon, for example. In August 2005, he joined Financial Network, his fourth b/d. Karoon says the first independent firm he joined was not in line with his plans to grow his practice. A former colleague was then the national sales manager for a New Jersey-based firm with about 300 advisors. After a meeting with other senior management at that firm, he says, “I felt it was the right move to help grow my business.” And he was right. Between January 2001, when he joined the b/d, and August 2005, Karoon's assets increased to $110 million from $30 million, and he hired 16 advisors.

But in 2005, Karoon felt it was time to move on again. “We outgrew the firm,” he says. “If we wanted to take the practice to the next level, we'd have to go to a b/d that could support us on a national level, not just locally.” This time Karoon researched approximately 21 different independent b/ds. He decided that size made a big difference to him. At the small- and medium-sized firms, he thought he would run across the same constraints he was already experiencing, while a large firm with brand recognition would add to his already growing practice.

The switch to Financial Network was another positive move. In the last 18 months, Karoon has changed his title to regional director and opened five additional locations across the country. With assets approaching $300 million and production reaching $4 million, he says there is no doubt the moves were worth the effort. Karoon says that the key to his success with his various moves between firms has been being able to identify the specific feature he was looking for in a b/d.

Dennis Gallant, of Gallant Distribution Consulting in Sherborn, Mass., says increased switching within the independent channel has put pressure on b/ds to improve their offerings for reps in search of “something better.” He adds, “It used to be that independent b/ds were nothing more than a clearing house and all the rep wanted was a decent product offering. But now indie reps want wealth-management platforms, alternatives products, updated technology, fee-based platforms, certain planning tools and training.” The firms able to provide these features are luring reps out of their current firms and causing many of them to hop to a different independent b/d at least once in their careers.

First-Time Breakaways

Switching firms is always scary and complicated, particularly when you are going independent for the first time. (Once you've gone indie, you can switch around in the channel more easily, Palaveev says.) But whether it's the first time or the fourth, the same general guidelines apply. For one thing, you've got to know what “flavor of independence” you're looking for. Larger firms offer advisors an investment platform and let them manage their own offices, including expenses. Or reps can affiliate with firms who offer them office space (for a price).

It is especially important for those going independent for the first time to understand the b/d's compensation grid. Palaveev says to ask about any fees, such as ticket charges. Sometimes there are even separate payout grids for variable annuities and mutual fund fees.

Advisors should also make sure potential firms' platforms will address all their client needs. Palaveev says that since wirehouse firms have been pushing fee-based advice, it's crucial for reps to “find out what the fee-based advisory platform is like at the potential independent b/d. Do they offer wrap accounts? Separately managed accounts?”

The clearing platform offering was a major deciding factor for Andy Kaiser, a former UBS Financial Services advisor who was in the firm's top three percentile for production and who recently went independent. After taking some time off from the business in 2003, Kaiser says he returned to find the “brokerage landscape had changed.” He says advisors were being rewarded for net new assets instead of growing current assets. He knew then that he wanted to build his own practice.

When it came time to pick an independent firm, the clearing platform was a major factor. He wanted to use Bear Stearns. Since Kaiser spent 20 years on the brokerage side catering to clients with at least $5 million in liquid assets, it was crucial to him that his independent b/d use a platform with global offerings.

Kaiser says making the final selection was fairly simple. He spoke with headhunters and other independent advisors. Most importantly, he called Bear Stearns and asked one thing: “Who are the firms that you clear for?” There were only handful that fit his criteria, and Kaiser decided that the management at American Portfolios, in Holbrook, N.Y., understood his wealthy investors' needs best.

Kaiser, now managing partner of Mountain Hill Investment Partners in Atlantic Highlands, N.J., says, “The physical process of the transition from a wirehouse to an independent firm, if you have a good plan, is easy,” he adds. “But you need to understand the fight your wirehouse firm will give you, and you have to get in front of that. It doesn't hurt to have good legal and accounting advice during the process.”

The Culture Factor

There is one issue that is sometimes overlooked when a rep is switching, consultants say: the culture of a new firm. Sharing business values with colleagues and believing in the firm's management can be just as important as having the right platform. “If you go to a b/d's conference and you feel like you don't belong, then you have an issue,” Palaveev says.

This was the case for David Wren and Fillip Gershon, former Smith Barney advisors who say they no longer fit into the wirehouse culture. “We were predominantly a financial-planning practice. We did mostly fee-based work with mom and pop-type clients and very little institutional business,” Gershon says.

Gershon and Wren knew wirehouse firms had at least one major selling point — technology. So when choosing a b/d, their main criteria were that the next firm have the technology in place and a platform available that allowed them to continue their fee-based business. Further, coming from such a well-known firm, they say brand recognition was another big factor.

They started the search online. Their criteria: payout, competitive fees, integrated technology, brand name, accessibility of management and, most important, they say, “what the firm had in place to help us transition.”

Then they followed up with phone calls. “You take notes, ask about the things important to you and can narrow it down even further after the conversations take place,” says Wren. The partners ended up with Multi-Financial, an ING subsidiary, in Spring Lake, N.J.

For Wren and Gershon, like all other reps switching b/ds, the decision was based on what they were lacking at their previous firm. “When you take the time to educate yourself, you'll see it's not that tough to make a decision,” Wren says.


Eleven percent of all independent advisors say they plan on switching b/ds within two years. Here's what they're in search of.

25% Better support
22% Greater independence and flexibility
14% Desire for wider product availability
11% Better technology
8% Better payout
Source: Moss Adams


There is plenty at stake when choosing a new independent b/d. Bill McGovern, founder of the consulting firm B/D Search in St. Petersburg, Fla., says advisors should be looking carefully at some specifics before making a final decision. Money (payout, fees, ticket charges)
Product and services
Tools and technology
Future of the company
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