There are many strategically sound reasons for small- and mid-size broker-dealers to shed operational and regulatory complexities by relinquishing their broker-dealer status to become a super-OSJ group on a larger broker-dealer’s platform.
In many ways, this option has also stood as a sort of “In case of emergency, break glass” contingency plan for small firms. And with the Covid-19 pandemic heavily impacting this segment of the industry, many of these firms are resolving to finally make the change.
But this is also the kind of move that also has the potential to raise concerns that could keep both home office leaders and the financial advisors they serve up at night.
At the heart of any IBD-to-OSJ conversion, especially during this challenging time for the broader economy, is the concern that home office leaders and financial advisors about potentially becoming a miniscule fish in a big pond, without the basic attention they need to succeed.
Financial Advisors Know There’s No Substitute For C-Level Involvement
There’s a key difference between what a C-level executive can do for a small or mid-size BD converting to a producer group versus what an “expert support team” can do: The senior executive can make changes to the larger firm to fit the new producer group’s needs, while all too often, a support team will be looking for ways to change the producer group to fit the larger firm’s existing solutions.
Broker-dealer leaders seeking to make this shift should not hesitate to ask detailed questions—both of the larger firm and its affiliated OSJs—about the level of engagement they can expect from the larger firm’s CEO and other leaders.
Will they be present on Zoom meetings with key recruits (or in-person meetings when these become feasible again)? Will they personally get involved in enhancing the new producer group’s marketing functions? Will they facilitate introductions to potential candidates for succession planning or acquisitions? (Note that the answers to these questions should go well beyond, “You can get a member of the executive team on the phone at any time.”)
If the C-suite won’t personally prioritize the Super-OSJ group’s success, that won’t translate into success for the group’s financial advisors.
Boosting Margins With One Hand, Whittling Them Down With The Other?
Many firms with 100 or fewer advisors operate on thin margins. The need to reduce expenses is typically one of the key benefits of shifting to a producer group model on another broker-dealer’s platform.
Unfortunately, while some larger firms are able to deliver cost savings by drastically reducing operating costs and regulatory burdens for small to mid-size BDs, they almost immediately start to cut into those cost savings by stealthily introducing platform fees, program fees and other new charges, in addition to affiliation fees. For new producer groups that seek to grow through acquisitions, these costs can extend to unnecessarily high interest rates on transaction financing, as well.