Anecdotally, most recruiters would say that anywhere from 5 to 7 percent of all independent advisors change broker-dealers each year. Similarly, the majority of recruiters would probably say nearly three times that number think about changing independent broker-dealers.
Most independent financial advisors have a natural inclination against changing firms. The process is time-consuming and potentially disruptive, so inertia frequently wins with the advisor staying put. Moreover, it's obvious to many industry experts that the new fiduciary rule put in place by Barack Obama's Department of Labor (DOL) may collide in the near future with the DOL's policy agenda under our next president, Donald Trump. Continued regulatory uncertainty will also continue to contribute to advisor inertia in potentially switching broker-dealers.
But independent broker-dealers are deluding themselves if they believe this situation can continue to persist. One way or another, the industry will get clarity on what the new regulatory environment will look like for the next four years soon enough.
So rather than get hung up on any single issue or bucket of issues, the independent financial advisor today needs to think about his or future independent broker-dealer platform in a truly "Post-Trump" and "Post-DOL" way. This means approaching your possible broker-dealer transition with a long-term plan that addresses a broad set of prospective future challenges and captures the widest possible volume of potential future opportunities.
So what are the top four considerations for the independent financial advisor hunting for a new broker-dealer in a Post-Trump and Post-DOL landscape? Think about the following:
1) Assess whether your potential new broker-dealer actually embraces and supports your business model. When mulling over their affiliation options, many independent financial advisors will look for a broker-dealer that can handle their business. But advisors need more than that. There is a significant difference between a firm being able to handle your business versus one that supports, embraces and helps it grow.
If the majority of your book, for instance, is comprised of fee-based business, it clearly doesn’t make sense to align—or stay aligned—with a firm that specializes in annuities or other insurance products. Such a partner, while perhaps capable of providing a baseline level of service, likely won’t be up to the task of addressing all your fee-based related needs properly.
Fleshing this out a bit further, some fee-based advisors manage their own portfolios, while others look to outsource that function. For those who take more of a hands-on approach, how does a broker-dealer supplement those efforts? And for advisors leveraging established asset management solutions provided by the broker-dealer, obviously the questions will be significantly different, orienting primarily around the quality of those broker-dealer based offerings and how much they cost.