• You will have to slowly disentangle any financial ties with your current employer. If you have retirement accounts or other employment benefits, you must have alternative solutions lined up (for example, new mobile phone contracts, bank accounts, travel discounts, subscriptions to research, etc.).
• You must be aware of the impact the change will have on your clients. It might be disruptive and upsetting to them, and there will be surprises. People you have deep relationships with may not follow you, while others you weren’t particularly close to cannot wait for the new ink to dry. It’s not personal. It’s just what they believe is right for them now.
As soon as Ken decided he was going to leave his firm, he began his due diligence, researching where he could continue his career on a platform that would allow him to operate with integrity and fulfill his charge as a CFP. He spoke with broker-dealers (both regional and national), four or five different medium-sized registered investment advisory firms with sound reputations, and several regional and national banks.
His final selection was a firm that offered a culture he desired, a strong fiduciary acumen, independence (with an employee ownership structure) and a good location for his family. He understood he would have to wait a year before attempting to contact clients from his former firm, but he succeeded in aligning himself with a company that believed in his capabilities and sustained him financially until that year went by.
Not every advisor has such a good experience, unfortunately. In fact, many advisors who decide to leave face legal, emotional and financial devastation.
Our Legal Conundrum And Putting The Client’s Interest First
We have all seen the headlines about wirehouse firms leaving the protocol for broker recruiting, which protected firms by establishing a standard for how much client information an advisor could take when changing jobs. The protocol was intended to help all the companies avoid the expensive litigation that results when they fight with advisors who leave and take clients with them (litigation that causes hemorrhaging on corporate balance sheets). If an advisor followed proper governance rules, he or she was free to take a list of client names, e-mail addresses, phone numbers and account names, and actively solicit those clients without the fear of a temporary restraining order.
Apparently, once the protocol proved to be less accretive for some firms, it was abandoned. And as they relinquish themselves from these agreements, we enter a world in which the guardrails that kept us from litigation and chaos will be gone.
It’s understandable that employers who sign hefty paychecks to advisors or share with them a hefty percentage of revenue want to protect themselves. They are the ones who have fronted the salaries and sacrificed time and energy to grow their talent pool. But on the other hand, there must be a less draconian solution to advisor attrition—if only for the sake of the clients. In the legal world, law firms acknowledge that it’s often a net benefit to the client if he or she can be wooed away by a lawyer to a new firm. The same goes for finance: The inability to transfer client information between firms is a profound net loss to those clients. We should allow such information transfers for the same reason we allow patients’ medical records to be transferred from one physician to another. Advisory clients must be confident that their personal financial information can follow an advisor to his or her new place of business.
Using Caution