2) How well represented are the advisors on the broker-dealer's board? To truly have influence, advisors must have some representation on the company’s board, helping to set goals, offering strategic direction and providing input on major decisions, whether it relates to the composition of the senior leadership team, the company’s long-term plans or scope of operations.

At the same time, there’s a delicate balance in having advisors take on too great a role in this respect. Running an independent financial advisory practice and working with retail clients, though rewarding, is time consuming. Having a board that is substantially or solely comprised of advisors trying to take on more responsibility at the firm level can lead to a lack of focus for the IBD and the advisors, which serves the interests of neither particularly well, and potentially short-changes the end client.

3) How accessible is the broker-dealer CEO as well as the senior leadership team? Because there are no public company shareholders or private equity partners under this model, management exists to serve the needs of the company, which are aligned with the needs of the advisors. As such, they should be extremely accessible and hyper-responsive to advisor concerns. Advisors looking at such IBDs should ask how frequently the CEO and other key members of the IBD management meet with advisors as a group and, more importantly, one-on-one. 

It's also worth diving deeply into whether the IBD has created institutionalized forums and a council that allow advisors to regularly interact with members of the senior management team and provide feedback on important matters. If so, how often do these forums and councils meet? What members of the management team of the IBD are required to attend on a regular basis? And what is the process of translating advisor feedback from these structures into actionable strategies by the IBD?

4) How strong are the firm’s financials? Any business, regardless of size or focus, needs to be properly capitalized to satisfy its mission. While we often read articles and hear self-serving statements that only large firms can survive the latest compliance requirements, we have heard the same claims for decades. And yet smaller firms continue to be formed and thrive. While the costs of operating a business in the investment and wealth management world have risen dramatically, all firms should have carefully-planned reserves and operating margins to survive. Smaller firms may be the obvious targets for being at risk, but we have seen large businesses unable to survive as standalone businesses over the past decade. We have even seen large firms having to file for bankruptcy protection. Such results should cause the financial advisors reviewing an IBD to perform appropriate and thorough due diligence, just as they would do when selecting a product to recommend to a client.

5) Are there proper controls in place to ensure balance, transparency and an alignment of interests? The overarching question of proper controls to address the question of conflicts of interest must be directly considered. The areas of ownership of the firm, management of the business, service of the advisors to their clients and board representation are critical to achieving balance and transparency. With good systems, appropriate disclosure, and the inability of any one group to dominate the others, the optimal results have the best chance of being achieved, both for the advisor and, most particularly, for the client of that advisor.