Practice Management

B-D merger mania presents options

Whether to stay or leave will depend on a careful assessment of the new firm and its intentions

Apr 20, 2014 @ 12:01 am

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The consolidation in the independent-broker-dealer marketplace has picked up steam over the past 12 months and more than likely will accelerate even more this year.

In fact, we expect six to eight more broker-dealers to be gobbled up by larger entities in 2014.

Those who work for a broker-dealer that is being acquired need to be prepared.

First, let's look at why this is happening.

It is no secret that it has gotten far more expensive to be in the broker-dealer business over the past few years.

Compliance, technology and other costs have taken a toll on margins. Some broker-dealers that don't have strong capital behind them may have no choice but to look for an exit strategy.

So what should advisers do when their broker-dealers are sold?

The first thing is find out the intentions of the acquiring firm. Does it plan to leave the broker-dealer as a stand-alone or roll it up into another broker-dealer?

Even if the acquirer announces a plan to leave the firm as a stand-alone, history has shown that plans can change quickly, so keep a watchful eye and have a backup plan in place. If the acquirer plans to roll up the broker-dealer from Day One, it may be time to do some due diligence and put a backup plan in place right away.

If the firm is acquired, identify what is important.

For example, those who are affiliated with a smaller broker-dealer where they enjoy the accessibility of key senior management may find that if the firm is purchased by a larger firm with plans for a roll-up, the new situation may not suit them. Conversely, those who are looking for more technology and resources from their broker-dealers may want to stick around if the acquiring firm is promising these things.


When a firm is acquired, the acquirer typically will make a marketing presentation to its new advisers.

This is the time to be prepared with the following questions to help determine if this new relationship is right:

Does the new firm use the same clearing platform?

What technology does the new firm have available?

Will I have to repaper my business?

What is the culture of the new firm?

Is the firm's business a good match? Is it largely transaction-based or focused on fee-based business?

What kinds of fees are associated with the new entity?

What are the costs of doing business at the new firm?

Will the payout change?

Is the compliance/supervision structure similar?

What products will be available?

What is the review process for new products?

Is a retention package being offered?

It is important to dig deep with the new firm and discover as much as possible to truly assess the best business decision for the advisory practice.


In the 25 years we have been in business, we have seen countless broker-dealer acquisitions. Some have been advantageous, while others have been disastrous for the advisers involved.

In our experience, the most successful acquisitions are those in which the acquiring firm takes the time to determine the needs of its new advisers. When an acquiring firm makes quick changes, such as terminations of back-office employees, changing the clearing platform or bringing in new leadership, it is typically a sign that the firm's culture is a thing of the past.

One of the main benefits of being independent is that it provides options as far as with whom to affiliate, as an adviser's book of business is portable. If the broker-dealer is acquired, it doesn't necessarily mean that the new firm will be the best choice.

To determine whether a new relationship will work, advisers should know their options and what other firms are offering advisers.

If due diligence shows that the firm acquiring the broker-dealer will add value and fulfill the adviser's needs and wants, then the change could be beneficial. If the new firm doesn't offer that, another firm may be a better fit.

Jodie Papike is the executive vice president of Cross-Search, a third-party independent-broker-dealer recruiting firm.


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