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Five ‘Post-DOL’ Questions Indie Advisors Should Ask Before Transitioning Their Business

Look beyond regulatory concerns to these five issues.

By Jay Vinson

While most industry observers know the independent channel didn’t see much advisor movement throughout most of 2016, there was definitely an uptick in the number of advisors who began to seriously consider a broker/dealer change in the closing weeks of last year, and into the early days of 2017.

Whatever happens with the ultimate future of the DOL rule, it’s time for independent financial advisors who are seriously contemplating a move to a different firm to look beyond regulatory concerns and ask themselves the following top five questions that should be considered as part of any potential transition process:

1. What tools and resources do I need for the long term, and what tools do I have access to right now, but never use? Broader industry currents suggest that running an independent retail financial advisory practice will continue to involve increased complexity. Independent financial advisors seeking business growth on a scalable basis will need to make sure switching to a different b/d will provide them with the necessary services and tools that align with their own businesses in a way that promotes the advisor’s focus on client-facing and business development activities, versus non-revenue generative back- and middle-office minutiae.

With this in mind, consider making a checklist comprised of “Column A” and “Column B,” showing in the first column the types of b/d support and services that you utilize most on a daily basis. The second column should include all of the items from Column A, but also include an ideal wish list of other forms of b/d support currently unavailable, and that you ideally would have access to with a new b/d relationship. This will help an independent advisor determine whether a move to a different firm would be worth it, while also helping the advisor to narrow down potential new firms to the ones that present the best possible fit.

2.  How important is broker/dealer ownership stability to my practice? It’s quite common for successful independent advisors to discount changes in the ownership or control structure of their broker/dealer, citing that “it’s not the firm that my clients deal with, it’s my practice that is front and center to the client relationships.”  While this is true, there are also inherent risks to independent advisors who do not pay attention to whether a b/d they are thinking about joining might be sold. Change of control transactions at the b/d level can potentially result in significant changes, from replacement of your usual relationship manager and other key contacts with new personnel, to the need to repaper accounts. All of this can be highly disruptive to your business.

Indeed, few things can be more frustrating than spending the time and effort needed to transition to another firm, only to get swept up shortly afterwards in a new wave of consolidation. Advisors should, therefore, look not only at their prospective new firm's ability to invest in advisor support platforms, but also review its ownership history. Advisors should ask themselves: In the last 10 years, has the firm changed ownership multiple times? Are there credible rumors that further ownership changes are coming? Has there been a recent wave of longtime advisors who have decided to depart due to ‘management changes in the home office?’ These are warning signs you can't afford to ignore.

3.  How important is on-site assistance to my practice? There will always be independent advisors who are most comfortable with a b/d that takes a “less is more” approach with service. They know how to best run their businesses, and don’t need any extra support to be able to do so. But more frequently, in an industry landscape characterized by escalating complexity, independent financial advisors increasingly value having access to teams of experts through their b/d whose sole mandate is to meet one-on-one with advisors and shepherd them through the opportunities and challenges of operating in an ever-changing industry landscape. 

For independent advisors who believe on-site assistance is important to their future success, it will be crucial to identify potential b/d partners that not only provide such resources, but do so through experienced personnel who will not only help them through day-to-day issues, but also map out a growth strategy customized to their business.  When interviewing potential b/d partners, ask who would serve as a day-to-day resource for your practice in this regard. Inquire as to how many regular, ‘in-home’ visits to provide advisors continuous coaching and feedback you can expect each year. Also, ask about specifics as to how they can develop a process to help you build a business plan, and how they can help you track ongoing progress and make course corrections as necessary. The devil is in the details.

4. Am I looking for technology “bells and whistles,” and if so, do I need strategic technology coaching? Frequently, IBDs will make large investments to boost their technology offerings (including data aggregation and analytics programs, digital financial reporting capabilities, and tech-enabled portfolio construction tools) but fail to follow through with a complementary advisor-facing support infrastructure that goes beyond basic troubleshooting assistance or a help desk. Advisors who are thinking of transitioning to a different b/d to gain access to more technology tools and solutions need to go beyond just asking for a laundry list of what kinds of tech resources they can expect, or how their IT help desk is staffed. 

Advisors also need to ask whether the b/d they are considering provides technology coaching that helps them strategically integrate the use of the b/d technology resources in their broader business plan. Part of this includes asking about how specific technology platforms and tools available through their b/d correlate to growth and profitability, and getting some initial direction on how frequently the advisor would be able to meet with a technology coach, as well as some preliminary thoughts on the technology resources the IBD believes would most move the needle for the advisor’s practice, and how.

5. What are the aggregate ongoing costs in a post-transition scenario?  With any transition to a different b/d, costs vary and should be carefully evaluated and compared.  Moreover, it’s not just about the upfront costs. Advisors considering a transition need to create a spreadsheet with data that includes ongoing costs such as monthly affiliation fees, E&O insurance fees, FINRA/SIPC assessment fees, technology fees and clearing fees. Equally important, advisors should review any agreement they have with their current b/d to ensure there are no retention bonuses or forgivable loans that must be repaid prior to moving to a new firm.

Each year brings change, and the relatively low volume of advisors in motion over the past year might have generated pent-up demand for a move in 2017 among independent advisors who feel they've waited long enough to join a firm that will allow them to better service the needs of their clients.

For these advisors, asking the right questions around certain key considerations will be crucial towards ensuring that any transition decisions lead to the best possible outcomes for their business and the clients they serve.

Jay Vinson is senior vice president and national sales manager at National Planning Holdings, an independent broker-dealer network supporting approximately 3,500 independent financial advisors across the country.

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