The Scariest Question, and Beyond
Once advisors decide to join the other side, they often find themselves asking the scariest question in the process: “Will my clients go when I go?” There are a number of factors that will impact client retention, but the most important one is whether the advisor is able to effectively present a compelling reason for the client to move. That reason needs to consider the swelling skepticism plaguing the industry, one which may have many investors suspicious that the move is motivated by some incentive to the firm. Advisors need to communicate how the client experience will improve, pointing to a wider array of products, the potential to offer more advanced technology, and the ability to assist with additional services. Advisors need to help clients envision a new, more comprehensive relationship where they will serve as a trusted financial advisor handling retirement, tax, and estate planning, going far beyond simply setting up accounts and reporting performance every year.
But relationships are typically formed with the advisor and not with the wirehouse. That means advisors who have built strong bonds with clients over the years may not need to offer anything more than that continued relationship to get clients on board. That process to woo them can’t legally start until an advisor has left the wirehouse and any non-compete clauses have expired, meaning a scramble will ensue as both the institution and the advisory firm begin vying for clients once the advisor is out the door. Any advisor should consider retaining 80 percent or more of their assets a resounding success.
Beyond that critical issue, advisors have a litany of other logistical hurdles that come with having to repaper an entire book of business. Overcoming those hurdles, along with testing the strength of their client relationships, will amount to four to five months of possibly the most nerve-racking time of an advisor’s career. Advisors need to understand the legal obligations to their current employer. They should review existing employment contracts and restrictive covenants that may present risk or opportunity within the transition. If they are not “plugging” into an existing firm, they will need to establish a compliance program, and ensure they have technology to handle customer relationship management, compliance, document management, financial planning, portfolio management and reporting, new client proposal generation, and trading. Then, they’ll need to arrange for on-site operations and technology training.
Once they address legal and technology issues, they will need to develop a communications plan that details their brand and marketing strategy to launch the actual transition. That plan should articulate why the advisor is moving to the new RIA model and explain the tangible benefits clients should expect. Advisors will also need to organize client account information and pre-populate client account paperwork. Every single client account must be repapered. They will need to execute priority processing of asset transfers and ensure that new accounts are established quickly and efficiently. To structure and set up a business, advisors should secure legal counsel to guide them through the departure. They need to identify products and services to offer, and establish a transition timeline and client communications plan. They will need to determine staffing, compensation, and personal cash flow needs.
The Other Side
The transition checklist for the wirehouse advisor may feel intimidating with its seemingly endless list of technical, logistical, and client-related hurdles. But advisors should remember there is an exhilaration that comes with embarking on this transformation, as wirehouse limitations dissolve and a new marketplace of choice opens up, with everything from aggregation software to mutual funds. Free from institutional pressures, advisors can exercise more control over the client relationship, with interactions motivated by quality and not financial gain. They will be able to view vendors with equal skepticism, and not act on bias toward proprietary products. Independent advisors who want to sell their business one day will find their firm commands a higher price as they attract a multitude of buyers as opposed to one wirehouse, and can offer assets that come from advisory and not broker-dealer transactions. It is the model that makes the client the sole constituency, and it is the only one that will survive the competitive forces of the future.
Andy Schwartz is a principal of Bleakley Financial Group, a Fairfield, NJ-based firm that offers individuals, families and business owners independent financial planning and wealth management advice in a small team environment.