As a financial adviser, what should you look for when selecting a new broker-dealer, hybrid, or Registered Investment Adviser (RIA)?
As you begin your due diligence, you will quickly notice there are numerous alternatives on the direction of your practice. Alternatives are one thing, but a solution that compliments your present practice, addresses your concerns, and supports your ideas can make finding the ideal solution a bit more challenging.
Though there are several quantitative needs in the search for a new home, I wanted to provide some insight into a few essential qualitative needs to be aware of during your research.
Culture & Character
The culture and character of your practice should align with the culture and character of the firms you are evaluating. You know best how your practice operates, the service expectations and the nature and ethos of your office. If you are having issues defining this, ask your staff and clients for their insights and why they work with you. As it relates to the firm, senior management, staff, and advisers will give you their perspective. What you want to hear is consistency in their message. The culture of a firm is driven from the top down, as they will only hire those individuals and transition advisers that are complimentary to the philosophy of the firm and support the vision. Growth of a firm should be driven through quality not quantity. If the message is not consistent or meaningless, look elsewhere.
Areas like compliance, technology, service, products, and clearing and custodial services have been commoditized in our industry, but it’s critical to recognize how a firm delivers what they must make available and the significance it plays in your business.
Compliance has always received a bad rap. We have heard them called “Business Prevention Units”, “Attorney Land” and “A Place Where Ideas Go to Die”. Fortunately, some firms have taken the approach that compliance can be a partner for advisers. Obviously, compliance has the primary task of protecting, educating, and advising the firm and advisers on how to remain compliant…an ever-changing and challenging course. When compliance engages as a partner with advisers, advisers feel comfortable discussing all aspects of their practice and how to best grow and market an advisers’ practice. When your business grows responsibly, it makes everyone’s job easier, generates appropriate revenues and builds trust and confidence between compliance and advisers. Make sure you grab a few minutes with the CCO to get their perspective and insights on best practices utilized by the quality advisers at the firm.
Technology has become the big equalizer. Smaller firms can now provide advisers access to tools and resources that were previously only available to firms with deep pockets or access to capital. Technology is very simply a tool that creates efficiency. It does not do anything until someone engages with it. Some firms have taken the approach to throw a FINTECH smorgasbord at their adviser base with little regard to how all the different platforms integrate with one another. If the technology stack is not carefully analyzed by those implementing it, technology can quickly become a hinderance to growth versus the intended objective as an effective process multiplier. A firm must also commit not only to educating those utilizing the technology, but periodically assessing that the technology still serves the intended purpose. If not, what are the alternatives available that should be supplanted into the offering? Technology has never been stagnant and a firm that is consistently refining their technology offering is maintaining a keen eye on changes in the industry and more than likely, listening to what their advisers may be suggesting…a good sign in a quality relationship.
Service can be one of the most challenging areas to get an accurate picture of how the support staff of a firm engages with the advisers. The inclusion or lack of proper service guidelines and expectations can have the greatest positive or negative impact on your business and the service standard you have adopted for your clients. Remember, the service model you have set forth for your clients is affected by two components: The service level of you and your staff and the service level of your broker-dealer, hybrid firm or RIA. If all service standards are met, your clients will be happy, but if either of the two components fail, your service falters. If your office fails, you can quickly formulate a solution, accept the responsibility, and apologize to a client. On the other hand, if your service support desk at the firm has repetitive issues, trying to remedy the situation becomes more difficult. Your clients will perceive that your practice is having the service issues. You may recall that there have been studies done in our industry that the number one reason a client seeks another adviser relationship is due to the lack of service or timely response …not performance. Talk to the COO or ops manager to get a clear overview of how they monitor their service standards and correct issues. Also, make sure the firms service department monitors your progress during and after your transition. Transitions are not done in 6 days, nor should they take 6 months. Issues should be addressed promptly and professionally.
The investment products and strategies you use to manage client’s assets and risk is an integral part of your business model. Most firms have the capability to do a transfer of assets/products painlessly unless you may be using a unique strategy or process that is not recognized industry wide. As you begin detailed conversations, most firms will send you a questionnaire that requires a comprehensive list and asset levels of all products and services. If there are strategies or products you are using and are a “must have” for your clients, address your mandates early in the conversations. Firms that may not have an agreement with a specific provider (i.e. TAMP), may sign a sales or servicing agreement with the provider. Make sure you clearly understand weather you can continue to offer the product if you can add to existing accounts and if you will continue to be compensated. A serving contract is just that…you can service an account but usually you will not be compensated. Your client’s interests must always come first and must remain whole during the transition. If a potential firm is unaccommodating your needs, be selfish and look elsewhere. If they have no interest in working with you on something so essential in your transition, you may wonder if they will work with you on the non-essential items that will come up once you have transitioned.
Clearing & Custodial Services
With numerous quality choices available, firms that are clearing agnostic are usually the best choice. If an adviser is happy or not with their present clearing arrangement, they will have the opportunity to simply continue using the same clearing firm(s) or to access a different one. Keep in mind that the structure of your present business may not be the same in 5-10 years (i.e. you may want to add institutional services). If the new structure requires a custodial change or addition, it is much easier to do this at a firm that is agnostic to clearing rather than beginning a due diligence process to seek another home for your practice. What if you have found the firm you really like but they do not have your present custodian? This happens frequently and getting insights into the new clearing firm as well as education and training is key to a smooth transition. You may want to request additional administrative support during the transition to ease the burden and complexities associated with operating and processing your business on a new platform.
As a final thought and you may not hear this often, be selfish on behalf of your clients and your practice. You are contemplating moving your business and you should not assume or trust that all the verbal & handshake promises that were discussed, will be delivered. As in the military or job offer, get everything in writing that details and summarizes all the agreements that were made to you. This ensures that both parties come into this relationship with a clear understanding of the deliverables and expectations.
I wish you well in your search.
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