With Finra's bonus disclosure moving ahead, practice how to break the news to clients

Focus on the positives, but be ready to discuss the details

Mar 12, 2014 @ 1:03 pm

By Liz Skinner

Advisers need to practice the pitch they'll use to persuade clients to switch to a different firm with them, because those conversations could get much more difficult.

If the Financial Industry Regulatory Authority Inc. bonus disclosure rule were approved, advisers on the move to a new Finra-regulated firm wouldbe required to disclose to clients incentive compensation they received of $100,000 or more. That disclosure would have to be made in writing, but advisers who first communicated orally with clients about the move would have to make those disclosures during that initial conversation.

(See also: Finra bonus disclosure rule goes to the SEC)

“Any sophisticated client has known that when advisers move they are getting paid,” said recruiter Howard Diamond, managing director of Diamond Consultants Inc. “Advisers should have an upfront conversation about the compensation and be transparent about what's going on.”

Talk to clients as one business owner to another, he recommends. For instance, advisers may want to say, “Just as you are entrepreneurial and looking to grow your business, I think you can appreciate that I am as well.”

For clients who seem particularly concerned about what may look like a large payout, explain more of the details of the transaction, Mr. Diamond said, such as saying it's a loan and that the client isn't paying for it.

The focus of such conversations should be on what benefits the new firm offers for the client, he said. Make the motivation and priorities clear by saying something such as, “I would have made the move even without the money because I believe it's the right firm for you and for me.”

Mr. Diamond said advisers will need to get good at having these conversations. He expects some will “have a couple stumbles along the way,” but practice will help the adviser become more comfortable with the discussions.

Kevin Dinino, president of KCD Public Relations Inc., which helps advisers develop transition marketing plans when they switch firms, recommends advisers be proactive and positive about the incentive compensation, perhaps describing how they intend to use the funds to advance the business.

For instance, “Our firm got $X for transitioning broker-dealers, and the reason behind that is we're a growing company that wants to recruit more advisers so that we'll have more scale.”

Some clients may require a more detailed explanation. For example, when mentioning reasons such as how the bonus compensation will allow the adviser to reinvest in the business, clients may want to hear specifically about plans to hire another account person or to invest in the firm's marketing or communications plans, Mr. Dinino said.

Most clients will want to hear this news straight from the adviser, not in a note sent through the mail, he said.

Practice articulating the value proposition of the new firm, recommends Mark Elzweig, an executive-search consultant and president of Mark Elzweig Co.

For instance, if an adviser is going from a wirehouse to a regional brokerage, point to lower client fees and more access to home-office product specialists, he said.

The proposed rule change could stop some advisers from moving firms during periods when markets are performing poorly, Mr. Elzweig said. During such a period, advisers may not want their clients, whose portfolios are down, to see that their adviser just received a big bonus.


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