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Of Myths and Moving, 2019

Taking the time to be clear on your goals and fully understand your options will help eliminate the misperceptions and allow you to focus on the potential that lies ahead.

It was September 2004 when I wrote my first “Of Myths and Moving” article—a piece designed to help address some of the common concerns that advisors shared when considering a move. But the wealth management industry landscape bears little resemblance to that of years past; advisors have more options for how and where to run their businesses than ever before.

These days, you see as many top advisors leaping to independence as moving from one wirehouse to another—demonstrating that advisors have become more open-minded and willing to evolve with the times.

But when it comes to making a move, there are still issues that keep them up at night. Here are the top five issues facing advisors heading into 2020:

1. “I’m reluctant to move because I’m worried clients won’t follow me.”

The topic of client portability is one of the most common—and valid—concerns. For those advisors who do not feel they’ve developed strong relationships rooted in mutual trust and respect or cannot communicate how a move would benefit their clients, this apprehension is justified.

Yet for those advisors who can demonstrate that a move will not cost their clients anything and is being made for their benefit, this should be far less of an issue. In fact, for those advisors who have developed strong bonds with their clients, always putting their interests first, it has been our experience that 80% to 90% of the clients they wanted to take with them followed.

First and foremost, you need to assess your relationships to determine if concerns about portability are legitimate. Review any nonportable positions and be aware of the impact that leaving behind those positions or clients would have on your overall business.

The good news is that it has become far more typical for clients to develop longstanding relationships with their advisors, not the firm they represent. A book-mapping exercise, which allows for a side-by-side comparison of products, managers and funds to determine where they match up and where there might be gaps is an essential step in the due diligence process. Plus, this exercise helps to assess the genesis of each relationship and determine where clients’ loyalties might lie.

2. “I have a good amount of unvested deferred comp and bonuses due me, so I’m worried that a move would not be financially worthwhile.”

The reality is that some advisors can’t make peace with this calculus and would choose to stay put because the ties that bind are just too great or there’s too much risk attached to a move.

But don’t lose sight of the bigger picture: If you are exploring the independent space and can justify the move as being made for the benefit of your clients, then focus on ways to monetize in the short term to whatever degree necessary. In this new world order, there are many capital sources and investors who can make unlocking liquidity possible. From there, look longer term at how to build a business with maximum enterprise value that you can monetize at the end of the day.

Most transition deals offered by traditional brokerage firms—no matter the size—will allow advisors to be made whole on the money they might be leaving on the table. And when coupled with your ability to get to the next billion in assets more effectively elsewhere, it can be a win-win scenario. 

3. “Since Morgan Stanley and UBS pulled out of the Protocol for Broker Recruiting, and Merrill Lynch is likely to follow, how concerned should I be about being sued by my firm if I were to make a move?”

No doubt, the Protocol was a game changer; it made the process of moving from one Protocol firm to another seamless and far less risky. In a non-Protocol situation, the transition process and risk profile changes because it means that the advisor’s employment agreement and the post-employment restrictions in it (like nonsolicit, noncompete or garden leave provisions) govern.

This does not mean that advisors are destined for litigation if they choose to leave or join a non-Protocol firm, but it does make the need for an attorney essential.

In fact, most advisors have a nonsolicit provision in their contracts, and just like the pre-2004 days when there was no Protocol, attorneys have come up with strategies regarding advisors’ ability to move and port clients.

The bottom line is, advisors who want to move are doing so; they just need to be educated on how to do it strategically.

4. “The process of a move seems overwhelming—and the biggest concern is that I won’t be able to replicate everything my clients rely upon, such as lending, managers, alternative investments, financial planning, trusts, insurance, etc.”

While replication is a huge concern for many advisors, the good news is that the playing field has been leveled when it comes to technology, products and services. Except in very rare and unique cases, there’s no reason to believe that you couldn’t replicate everything your clients rely upon, including the ability to gain access to more modern and cutting-edge technology—no matter what model or firm one chooses to go to. Even in the most independent of models, service providers, custodians, technology solutions and capital providers have democratized access.

Ultimately, the onus is on advisors to do complete and thorough due diligence to make sure that they can replicate and improve upon all that their clients need access to—and also fully understand the process to do so. As with any change, it’s likely to require flexibility and the willingness to learn new ways of doing things—but the access to best-in-class solutions is available.

5. “There’s no way to re-create a viable succession plan outside the wirehouse world.”

Many advisors who have less than a 10-year runway to retirement have valid concerns about whether signing on to their succession plan involving a next-gen inheritor is best for all parties concerned. While at face value these programs offer senior advisors a pathway to monetize their life’s work without the disruption of a move, they almost always come with strings attached for both retiring advisors and their next gen.  

It’s the goal of almost every advisor to gain freedom and control, to be better able to serve clients and to customize the way in which the senior advisor ultimately exits the business. The good news is that firms outside the wirehouse world—regionals, boutiques and quasi-independents—have developed ways to create a liquidity event for the senior advisor and define a pathway to pass the business on to the next generation. And, in the independent space there are countless ways to custom-build a succession plan.

The bottom line is that making a move is a life-changing event for any advisor, and it comes attached with doubt and anxiety. But taking the time to be clear on your goals and fully understanding your options will help eliminate the misperceptions and allow you to focus on the potential that lies ahead.  

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