Deal breaker

(May 2006) When I meet advisors for the first time, I’ll often ask them why they became advisors. The most engaging ones tend to see advising as a calling, helping others achieve a financial well-being (or some variation on that theme).

So when the conversation turns to their dealer, advisors fall into one of two camps: the ambassadors or the discontented. The discontented feel torn between helping others the right way and what I call practice politics — this can come as a subtle pressure from a dealer to sell a particular kind of product or simply a suggestion that they’re not fitting in with the company culture.

Some of the discontent can be chalked up to typical, everyday grumblings. But once in a while, the advisor is disenchanted enough to make a change. They may tell themselves, “My clients are terrific, I’m making a decent income and only eight more years until I retire. I can do this.” And that attitude may work in the short term. But eventually, they may wake up and realize they need to make a switch.

One advisor’s breaking point came when her dealer, unbeknownst to her, fired some of her clients because they were deemed to have too few assets. This dealer’s dictating ways led this advisor to say See Ya, and the majority of her clients soon followed to her new firm.

So when is it time to investigate your options? When your philosophies are completely out of sync with those of your dealer. When you’re not getting the support you need to run the type of practice you want. When you no longer have faith in your dealer’s strategy.

In some cases, advisors who are more entrepreneurial-minded are tired of feeling like a cog in the machine, so they start their own firms or join smaller, boutique firms that give them more control and equity in their practices. In other cases, advisors may crave the support of a big-name firm and believe in-house specialists and superior training, not to mention referrals, outweigh the stress of running their own firm.

There’s always a fear of clients not being supportive if you switch firms. Some advisors dread the conversation (and the ensuing client questions) that come with making a move, but the best strategy is to be honest and give lots of warning. Talk about why you are making a move and why you think it will be in your clients’ best interests.

Diplomacy and tact are necessary when you speak to clients, so don’t bash the other dealer (even if it’s well warranted)! Bad talk will just reflect poorly on you. Also talk about what the move means for you personally. “I gained credibility points by stating upfront what was in it for me, as well as them,” one advisor recently told me. “People are not naive — even though there were advantages for them, clearly there must be some for me as well, to make such a decision.”

Of course, you don’t want to leap from the fire into an explosion. Does this prospective dealer truly reflect your philosophy or is their pitch just marketing speak? Can you really do without the training and other support your current dealer offers? Are there any compliance and technology issues?

This month’s cover story in Advisor’s Edge addresses the questions you need to ask yourself — and your dealer — to make an informed decision. And sometimes, the decision isn’t to leave for greener pastures. Sometimes, after much investigation, it’s green enough right where you are.

Deanne Gage, Advisor’s Edge, deanne.gage@advisor.rogers.com