6) Does the broker-dealer have a durable and transparent framework for addressing potential disagreements between the management and advisors, should any arise? Disagreements can potentially happen at any company across any industry. With independent broker-dealers, potential disagreements between the firm and the advisor can run the gamut from what types of financial products (proprietary or open architecture-based) should be available on the platform, to what kinds of new practice management tools should be embraced. Advisors should ascertain whether there are clear venues to express their perspectives when they are divergent from the views of management.
Whether this happens through advisor representation on the broker-dealer's board of directors, or in other institutionalized vehicles—such as advisor councils—or through other channels, the important thing is to ensure that there are sufficient venues provided for to reasonably discuss and resolve potential disagreements between the broker-dealer and the advisor if and when they arise.
7) Is there a clear path forward if the advisor ever seeks to depart from the broker-dealer? It's also important for the advisor to understand what the path forward will be if he or she affiliates with the broker-dealer and, over time, obtains a significant equity stake in the entity only to decide to depart from the broker-dealer further down the line—either because of a planned exit from the business altogether, or to transition to a different broker-dealer platform. Is there a mandatory buy-back provision of the advisor's shares, and what valuation process will be used? Alternatively, can the departing advisor retain his or her shares in the broker-dealer and choose to sell at will at a later date, if at all? There is no right formula for this, but it is crucial to understand whether there is a clear process in place that provides for such an eventuality.
All in all, an IBD that offers advisors ownership creates an alignment of interests between the broker-dealer, the advisor and the end client.
By now, the most recent wave of industry-roiling consolidation has come and is in a lull. It has left many successful and independent advisors wondering if there is any place left where they can find a greater level of satisfaction, comfort and certainty in their businesses. Industry watchers and advisors would do well to monitor those broker-dealers aligned with advisors which could be an explosive new sub-sector of growth within the independent space in the coming years.
Clive Slovin is president and CEO of The Strategic Financial Alliance, a privately owned independent broker-dealer and registered investment adviser based in Atlanta.