Financial advisors switching firms is not a new trend, nor is it one that is going anywhere anytime soon. Older advisors with large books of business are making transitions as they near retirement age when 10 years ago they would have hung up their spurs after working at the same firm for decades. Younger advisors, once hesitant to take early-stage risks, are not going to settle for mediocre partnerships with enterprise firms when the sheer number of options they have for shaping their careers and how they serve clients is mind boggling.
The independent advisory landscape has been gaining momentum and evolving in exciting ways for many years, but the coronavirus pandemic accelerated this considerably. Not only did it vastly change the way we work, but it exposed larger organizations who claim to have advisors’ best interests at heart when in fact they put themselves first and advisors second.
So, how can advisors looking to improve their path forward proceed to explore their options with confidence? Any move is a very serious undertaking and there is a right and wrong way to go about it.
Here are four important steps you can take to ensure you are approaching a potential change wisely:
- Define what your business model is now and what you want it to be in the future.
What is most important to you? More choice and variety regarding investment options for clients? More discretion over your technology “stack” (infrastructure)? Marketing support and resources? A referral network of CPAs to fuel growth? Help prospecting? Once you know what moves the needle for you and what is lacking in your current situation, you can pair those priorities with a variety of firms that can offer powerful resources to take your business to the next level. When you present your model and wish list to potential suitors, pay attention to the depth of their response. Remember, you are no stranger to pitching clients on why they should work with you— you are now in the driver’s seat. Take control of the wheel and don’t settle for fluff responses as you scrutinize offers.
2. Approach due diligence properly—do not take shortcuts
The due diligence process can be approached in several ways. There’s a significant amount of data available through custodians and other partners that you can leverage. You can also get information from specialized podcasts and benchmark studies.
Tap into your network in a confidential manner. The ideal people you should be speaking to are those advisors previously at your firm who went independent before you. Why did they make the move? What were their short- and long-term objectives? If they could do it all over again, would they? And if they had a second chance, what would they do differently?
Another great option is to work with a knowledgeable recruiting organization. Recruiters spend 100% of their time assessing various options for advisors on the move. They know the players and their job is to connect you with the best fit for you. Conflicts do exist in this arena, but the best recruiters eschew playing favorites (with whom they often have deals in place) and instead focus on your happiness and growth. Ironically it bears a striking resemblance to the fiduciary versus suitability debate. Is the recruiter compelled to put your unique interests first, or are they satisfied with just finding you a “suitable” home? To find that top recruiter, ask tough questions about how they work to find the right partner for their client and if their organization has any financial ties to the firms you are considering or other conflicts of interest.
- Examine a potential partner firm’s culture, ethos, client service philosophy, and meet as many team members as you can.
When a firm’s business philosophy meshes with an advisor, they are more likely to stay, be more content and have a more fruitful career. Get to know the players with whom you’ll be taking the field every day. Talk to other advisors! Go to lunch or have a cocktail with them and ask for the no BS assessment of their partner organization.
Make sure you spend quality time with the leadership team, both in the boardroom and in less scripted settings. You need to ask tough questions. What does the ownership structure look like today and what is the mid- to long-term strategy of the organization? Are they building for the long haul, or to sell in five years? You can’t go too deep in understanding ownership structure, capital partners and the long-term intentions of the leadership team. For example: Is the current chief executive 50? 65? 75? It is perfectly justifiable to be asking the leading principals of the organization what their retirement plans are and what the current succession plan and contingency plan are.
Ask direct questions about the company’s financial health—expect direct answers; it is important to feel comfortable that the organization has a strong balance sheet, a reasonable amount of debt and has been growing revenue steadily, year over year. Dive deep, don’t settle for a perfunctory glance.
Make sure you have a firm grasp of the economics of the partnership that you will be entering into. The firm that you are considering should walk you through a pro-forma/P&L statement that includes your top line and net revenues as well as all of the associated expenses related to the partnership. If the firm can’t provide you with this and doesn’t have clear answers to these questions, that is a significant red flag.
Spend time not only with the leaders in the organization but those who are executing on the day-to-day operational activities that you’re going to leverage. This is a great opportunity for you to identify the real value proposition of the company. And it also provides you a chance to see up close that group’s capabilities. You will see if the culture that’s previously been described to you is put into practice or just something written nicely on paper.
- When you are contemplating a deal, think about three to five years out versus the next six months.
Depending on your life’s circumstances, a transition assistance package is nice, but if you want to make a strategic decision rather than just a move, imagine what the long haul looks like. A big check often comes with strings attached. Upfront cash can also tip you off that you are being “rolled up”—effectively purchased for your assets, not because they really care about your future well-being or that of your clients. The real payoff will come down the line, when you double or triple your assets organically because your partner knows how to boost your growth and cares as much about your clients as you do.
Listen, if you need the money now and that’s your primary driver, then you do you. Many firms take advantage of advisors they feel are in a less-than-favorable negotiating position or nearing retirement and “need” to make a move.
Regardless of your age or asset level, know this—you hold powerful cards. Yes, there are a lot of advisors in motion, which might seem like firms seeking to add them have the power. If there were only a few firms looking to recruit and the independent advisory channel was sleepy and stagnant that might be true. It is not. The industry continues to achieve growth velocity almost unthinkable even five years ago. Just look at Michael Kitces’ FinTech map to see how many firms are competing for your attention and business.
There have never been more options available to you. Take your time assessing them properly and make an educated and empowered decision. This is your moment. Seize it.
Rob Sandrew is chief growth officer at Integrated Partners