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Choosing the right broker-dealer for you and your clients

I have spoken to 1000’s of advisors throughout my career and listened to each of them express why they are unhappy with their current broker-dealer and what they are looking for in their new broker-dealer partner.  Throughout my career in the financial services industry there have been many times where I have told a financial advisor that changing broker-dealers is not the right move for them and their clients.  In many cases a broker-dealer change is needed because of a change of ownership, rising costs associated with the broker-dealer, or lack of service provided.  In this blog I will breakdown some important things to consider when exploring a broker-dealer change.

It shouldn’t be about the biggest check:

I absolutely realize that there is a tremendous cost in making a broker-dealer change to you and your clients.  There is account termination fees, lost revenue, extra staffing, and other costs associated with making a broker-dealer change and those shouldn’t be ignored.  However, the firm that writes the biggest check is often not the best fit for you and your clients.  You have to dive deeper into the broker-dealer and examine what are the ongoing costs associated with partnering with that broker-dealer.  What is the advisory pricing going to be to you and your clients, what is your payout going to be?  Most importantly what is the service going to be to you and your staff?  You can not put a price tag on the level of service that you are going to get.  Important questions to ask are; What is the rep/employee ratio with the broker-dealer?  When you call in how quickly is your call answered?  How often is your question answered in the first call?  What is the turnaround time for opening a new account or getting a compliance item approved for use?  These are extremely important questions that you always should have answered.

What is the ownership structure of the broker-dealer:

In today’s environment in the financial services space we have seen the greatest consolidation in the industry and this will only continue.  As costs go up, regulatory issues continue to surface, and technology costs rise to remain competitive many broker-dealers are being sold and this will continue to be the case for many years to come.  If you are considering a privately held broker-dealer it is important to know what the succession plan is going to be or are they exploring their options to sell the broker-dealer.  If they are a publicly held company, you should go into this scenario with eyes wide-open that the management of the firms first and foremost interest is to their shareholders not you are the financial advisor and client.  Lastly, are they owned by a private equity company?  Many private equity companies have bought into the financial services space for a variety of reasons.  A lot of professionals believe that going to a private equity firm is not the right path to go.  I would tend to disagree with this opinion as private equity firms have deep pockets and typically invest a great deal into the infrastructure of the broker-dealer.  It is absolutely true that a private equity firm plans to sell the broker-dealer over time (typically 3-5 years), but this will likely be to another private equity firm.  If the private equity firms keep everything the same after the purchase then it is a seamless transition for you and your clients and you should see some sort of retention bonus involved.

Misconceptions regarding broker-dealers:

I have heard a lot throughout my career that financial advisors are afraid to make a broker-dealer change out of fear of losing clients.  This is an area that I feel strongly about in that a client is not with you because of the broker-dealer you are partnered with as most clients don’t even know the responsibilities of a broker-dealer.  If you as a financial advisor have always looked out for the best interest of your clients then that client is with you because of you not your broker-dealer.  If you lose clients during the transition, those are likely clients you don’t want long-term anyway.  I also don’t believe you need to be with a specialized broker-dealer that focuses on one area of the business in our industry.  For example, if you are mainly all advisory you don’t need a broker-dealer that only focuses on advisory business.  If you are doing mainly insurance business, you don’t need to be with an insurance owned broker-dealer.  Similar to you diversifying your clients portfolio, you should be with a diverse broker-dealer partner.  What is more important is being with a broker-dealer that is going to be in the space long-term as you don’t want to go through another transition and put your clients through that when being forced to make a move as it should be a choice you make not one you are being forced to make

Doing your research:

Let’s be honest, exploring your broker-dealer options can be a full-time job in itself along with running the successful practice you have built.  I am not saying this for the benefit of Trusted Visions or any other 3rd party recruiting firm, but you should strongly consider working with one of those firms when exploring your broker-dealer options.  This will allow you to continue to serve your clients to the highest level while allowing a firm like that to conduct all the due diligence and get as many of your questions answered as possible.  I recommend narrowing your search to 3-5 broker-dealers so that you are not looking at every possible broker-dealer as that can become too time consuming and a waste of your time.  A good 3rd party recruiting firm should listen to your dissatisfaction with your current broker-dealer, understand your practice, and have a good idea of your next broker-dealer wish list.  With that information they should be able to introduce you to a few broker-dealers that check all the boxes.  My last opinion is when you have finally come to the realization that you must make a broker-dealer change, don’t drag it out over 9-18 months.  It is similar to when someone is done with their current job, you will be partly into working with your clients, partly into exploring your broker-dealer options, and the two main things that will suffer is your production and service to your clients.

We hope that you have found this blog useful as these are simply the opinions of Trusted Visions and provide as much information to you as possible.