Welcoming disclosure

Dec 2, 2012 @ 12:01 am

The Financial Industry Regulatory Authority Inc. is considering a rule whereby financial advisers and their firms would have to disclose to clients the transition packages advisers received when changing firms.

I have been predicting this for at least six years and have been wrong until now.

Transparency is the trend with clients. The best firms and best advisers welcome full disclosure when it comes to hidden charges, points in bonds and conflicts of interest.

We routinely tell advisers to be forthcoming about the deals they receive to switch firms.

Why? Because the jilted firm's advisers — who, upon a colleague's departure, see dollar signs and call their “friend's” book — will use the recruitment deal against the former co-worker.

“Mr. Client, I know you have worked with Dave for years, but the only possible reason that Dave could have rationally decided to leave This Venerable Institution to go to That Lesser Institution is because Dave could not manage his own finances effectively and needed the money. Did you know that Dave got a million bucks to move? Ask him about it when he calls you.”

Advisers who move need to address this head-on.

Can you explain to clients why the new firm is better for them than the old one? And when you are asked about the deal, you have no need to be ashamed of a business transaction that protects income and makes up for the loss of golden handcuffs.

There are some who see this as the end of recruiting or a “headhunting Apocalypse.”

Firms give recruiting bonuses to attract talent. If they could attract it more cheaply, they would.

The recruiting environment is driven by the laws of supply and demand. With no firm having the secret sauce of training, fewer advisers have been entering the industry for the past 12 years.

At the same time, advisory is subject to the same demographic forces the country faces: Fewer people were born between 1964 and 1980 than were born between 1947 and 1964.

Reduced supply and constant demand equals higher prices, reflected in richer recruitment deals.

Some at registered investment advisers and elsewhere consider these packages unseemly or inappropriate. I agree that it is naive to deny that many adviser moves are made “just for the money,” but when an RIA sells a practice, isn't that also to make money?

The best advisers are not and should not be ashamed of the money that they earn. Transparency and disclosure are good.

Danny Sarch is the founder of Leitner Sarch Consultants Ltd.


What do you think?

View comments

Recommended for you

Featured video


The need for easier investment options.

Rob Barnett of Wilmington Trust makes the case for simpler investment choices for plan participants and sponsors.

Latest news & opinion

Why we must create a more diverse and sustainable financial planning profession

CEO explains how, why a firm should commit to conscious inclusion.

Pope Francis wants financial advisers to work like fiduciaries

Vatican bulletin admonishes advisers who act against the best interests of their clients.

Wells Fargo sees slowdown in advisers exiting this year

The 2016 banking scandal and public relations fiasco had alienated some of the firm's advisers.

States trying to save DOL fiduciary rule appeal rejection of effort to intervene

California, New York, Oregon ask for rehearing by full 5th Circuit Court of Appeals.

Employees at best places to work focus on the person — and the fun

Employees at best places to work firms focus on the person and fun.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print