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Taking Due Diligence Beyond Exploration: 6 Important Considerations

When the thought of making a move 'gets real,' there’s another level of due diligence that advisors should embark upon.

Most advisors consider the process of due diligence to be a disruptive and cumbersome ritual of “meet and greet.” That is, taking meetings, making the proverbial handshakes, and walking away either wowed by the firm or left more confused than before.

Yet, when approached strategically, due diligence can be an eye-opening experience—one where the intrusiveness that many fear is replaced by knowledge of your business and yourself.

So, what’s “strategic due diligence?” In the simplest terms, it’s a process that can be boiled down into two workflows, typically conducted simultaneously. The first component, which we have written about at length, is extrospective: That is, it’s about gathering information on specific firms and the landscape at large.

But the second component, while less talked about, is no less important: the introspective or the work required to prepare you, your team and your business for a potential move. And the truth is, this second piece of the puzzle often drags out long after the decision to move (and where to move to) has been made.

It can be a daunting feeling: Essentially, you have your foot in two lands, trying to manage your clients and day-to-day business while simultaneously conducting ongoing due diligence on one or more firms.

So, what are you to do?

The prevailing advice is downright befuddling: Don’t do anything that might raise any red flags at your current firm while simultaneously starting to get your ducks in a row. At the same time, you should make sure you’re prepared to pull the rip cord if and when the time arrives.

Got all that? Of course, you don’t! Because the truth is that even contemplating a move is overwhelming, uncomfortable and absolutely terrifying.

With that in mind, there are six things advisors should begin to think about as they embark on the due diligence path and the notion of a move becomes more “real.”

  1. The Deal

In an ideal world, how do you want a deal structured? Is there a minimum dollar amount you will require to make a move? Do you want a firm that offers equity? Are there any special considerations that may impact your decision (such as a large outstanding deferred comp balance, obligations from an existing recruiting note, etc.)? For many advisors, the deal is a gatekeeping issue. That is, without the right deal, none of the below items are truly relevant because it makes a move undesirable or untenable.

  1. Your Current Employment Contract

Do you have garden leave or other post-employment restrictions? What about noncompetes or nonsolicits? Is your firm aggressive and litigious in pursuing legal remedies for advisors who leave? Is your firm a member of the Broker Protocol? These questions are critical because engaging an attorney specializing in advisor transitions at the right time is pivotal. But step one is locating your employment agreement and determining if there are any major potential roadblocks.

  1. Your Team

Will you require a new firm to match or beat existing staff salaries? Do you want the ability to equitize or bonus your staff in a move? Do you require additional resources like an added client associate as a prerequisite for making a move? Another critical consideration as it relates to staff is when exactly to bring them into the fold and alert them to the possibility/reality of a future move. That part is art more than science. It’s paramount to take precautions to avoid any potential leaks, yet you also don’t want your staff to feel blindsided and out of the loop. But, in our experience, we find it’s better to keep the circle as tight as practical for as long as possible. At some point, though, you will need to bring your team over the wall, and they may have questions or topics to address (for example, they may want to see the office space or technology at the new firm). One system that we have seen many successful advisors use for alerting their staff is a tiered approach: Start the diligence process with just the key decision-makers (the senior advisors), then bring in critical support staff and junior advisors, and, last, all nonessential team members.

  1. Office Space and Requirements

Do you have specific needs or requirements in terms of the space you envision for you and your team? What about remote work policies? Are there mandates for the number of days spent in the office for advisors or support staff? In a post-COVID world, every firm views remote work differently: Some continue to allow complete flexibility, while others have taken a more rigid return-to-office policy. At the end of the day, any captive (W-2) advisor is at the mercy of their firm’s policies, and there’s no guarantee those policies won’t change in the future. But there is leverage in being recruited, and firms are increasingly willing to be flexible with potential candidates. As one manager put it, “I’m not going to lose the deal because of something as trivial as one day per week in the office.”

  1. Investments and Lending Book

Does the current book map over in terms of investments (SMA, UMA, mutual funds, alternatives, ETFs, etc.)? If not, will there be tax implications for your clients associated with making a move? What about the lending book? Can the new firm match or beat all existing rates, and does it offer solutions/products for all banking and lending needs (like securities-backed loans, mortgages and traditional banking solutions like credit cards and checking accounts? This is a critical step, and it’s not just about portability and mappability; it’s also about fee structure. For example, many wirehouse advisors who leverage the firm’s CIO portfolios are surprised to find that similar products are comparably “expensive” in the independent space. Also of note: Many wirehouses employ proprietary investment vehicles, particularly for alternatives (i.e., firm-specific feeder funds). These positions are likely not portable and would need to stay behind in a potential move.

  1. Your Client Mix

Do you hope or plan to transition all of your clients to a new firm? Can a potential new firm support all your client types (institutional, 401(k), ESOP, UHNW, HNW, traditional retail, etc.)? The reality is that many advisors actively try not to transition 100% of their clients. The concept of “shrink to grow”—that is, selectively leaving certain less profitable clients behind to free up capacity for your team—is attractive to many advisors who transition. After all, a transition to a new firm is the perfect opportunity to go through your book and determine exactly what you want it to look like.

Sure, it seems like a lot to consider—and honestly, it is. This is why we counsel the advisors we work with to ensure they conduct a thorough and strategic due diligence process—that includes both extrospective and introspective—to affirm that a move is indeed needle-moving enough to warrant the hassle and disruption. Plus, armed with this knowledge, that hassle and disruption level will likely come down a few notches, as well.


Jason Diamond is vice president, senior consultant of Diamond Consultants—a nationally recognized recruiting and consulting firm based in Morristown, N.J., that focuses on serving financial advisors, independent business owners and financial services firms.

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