Three challenges facing today’s independent reps

Intergenerational wealth transfer, succession planning and social media are issues vexing almost all independent advisers. But one innovative broker-dealer has a unique solution for all three.

There probably never has been a better time for a registered representative to consider a move to independence or to enhance one’s existing independent business by affiliating with a more suitable broker-dealer. Today, technological excellence is practically a given, as is an abundance of product choice. Even more encouraging, clients often are just as excited and enthusiastic about a move as their adviser. Still, independence has its challenges, so InvestmentNews Content Strategy Studio recently sat down with Jennifer Bacarella, Director of Firm Development at Sigma Financial Corporation and Parkland Securities, LLC to discuss key issues facing independent reps today and what her Ann Arbor, Mich.-based broker-dealer is doing to help their affiliated representatives meet those challenges and grow successful businesses. The following is an edited transcript of that conversation.

InvestmentNews Content Strategy Studio: What are the biggest issues facing independent reps today?

Jennifer Bacarella: I believe there are three. The first is succession planning. When we updated our representative agreement, we were amazed at how many reps named their spouse or child as the beneficiary of their practice. Essentially, that meant they had no other professional in mind to serve their clients if something were to happen to them.

The second is social media. The issue is more than just deciding whether to use LinkedIn or Twitter or Facebook; it’s really about how advisers want the public to perceive them, and about how deeply they want to be involved in social media. We find that social media participation is a daunting proposition for some, while others want to dive right in with no filter.

Finally, there’s the wealth transfer starting from baby boomers to the next generation. Independent reps worry about whether they will be able to retain the assets of their boomer clients and if their practices can attract the next generation. Some feel they have to be more tech-oriented. Others feel they need to hire younger advisers or employ younger staff. There’s a lot of uncertainty.

IN CSS: Let’s go into each of those issues. What’s the stumbling block in succession planning? Is it financial? Is it emotional? Both?

JB: The first issue is advisers seeing “retirement” as a viable option. So much depends on how the adviser started in the business, and their mentor’s example. We’ve had advisers in their 80s still actively working with clients. If that’s what a younger adviser has seen, they probably think of this business as one you can’t retire from.

Our industry doesn’t really have an easy retirement model to look at, either. The business has no standard 25- or 30-year work time frame, as in education or other fields. Many older advisers would like to cut back their hours, but not quit entirely. So, even as they advise their clients about retirement, they just don’t think about it for themselves. Often it’s clients who bring up the adviser’s retirement because they’re concerned about who will be managing their money in the future.
The second issue is trying to find a successor who’s the right fit. Some advisers overthink that to the extreme. They try to find an exact duplicate of themselves, because they’re convinced their clients won’t be able to form a relationship with anyone who doesn’t see and do things precisely the way they do. The truth is, we’ve had advisers take over the practices of retiring advisers who were their direct opposites in almost every way, and clients have transitioned quite happily.

Finally, there’s the worth of the practice. Recurring revenue and whether clients are actively adding money or are in the distribution stage are important factors in valuations. While everybody wants two or three times recurring revenue, many aspects of a practice can move the number. Very simply, the more transactional the business, the lower the multiple.

What we also see is that when advisers finally commit to selling, they start to regret their decision about a month before it happens. After the close, for about two months, they feel like they shouldn’t have sold. I’ve never met an adviser who was super happy on the day of the closing or who said that selling was the best thing they ever did. I think the regret stems from the loss of the social aspect of this business and the sense of helping people.

IN CSS: So wouldn’t transitioning out rather than quitting cold make more sense?

JB: Absolutely. We helped an adviser do that this year. We identified the purchaser and helped the current adviser develop a three-year transition plan. The process started by introducing the younger adviser to the current adviser’s clients, who loved it because they had been wondering about the adviser’s future plans. He never really had an answer for them, so when he “created the answer” by taking on a partner, clients told him they were very happy. The most interesting part was that clients only told him later that they had been thinking about leaving him and finding someone younger. So, often it’s not what people say, but what’s on their minds.

A three-year transition gives an adviser a chance to wind down. The first year involves working pretty much full-time, while the second is more part-time. During the third year, the adviser comes to the office maybe 10 hours a week for large client appointments, planning meetings, and things like that. This gradual phasing out gives advisers a sense of completion. They can say to themselves that they did a good job and can walk away knowing their clients are in capable hands.

We’ve also helped the families of advisers who had done no succession planning, suddenly leaving spouses with a business they know nothing about at a time they are ill-equipped to make major decisions. We’ve helped them realize the value of their late spouse’s business by bringing in other advisers to work with their clients, and then further assist by helping identify purchasers.

IN CSS: What advice do you give about social media?

JB: We always start by asking reps, “What do you think makes your practice great?” It could be anything. We have many advisers who are very active in their communities. If that’s the case, the adviser could focus on community involvement in their social media. People who love their community as much as the adviser does are going to notice this passion, relate to it, and naturally gravitate toward the adviser.

Also, we recommend advisers ask their clients to tell them what brought them to their practice and what keeps them there. They can then focus their social media efforts around that feedback, because the qualities clients highlight are the key things an adviser should be saying and doing to grab the attention of people like those they already serve.
So, the goal is for advisers to find their voice and use social media effectively, addressing issues they are passionate about and know well, while staying compliant. We have two compliance members focused specifically on social media to efficiently help advisers participate.

IN CSS: How do you address asset retention as wealth moves from the boomer generation to the next?

JB: We suggest that advisers address the issue head-on. We know wealth transfers will happen, and advisers should bring this up with their clients in a straightforward, helpful way. Advisers could have introductory meetings with clients and heirs, where we recommend advisers reassure all involved that the practice is stable, and has a succession plan in place, emphasizing the willingness and desire to maintain a relationship beyond the current generation.

IN CSS: How does Sigma help advisers address other important issues?

JB: While we’re truly a hands-off broker-dealer and don’t impose any goals or requirements, we’re here to support advisers and share ideas. More than 15 years ago, we created a case planning department staffed with specialists. In addition to product and financial planning specialists, we’ve added a highly experienced editor, who helps us effectively communicate with our advisers, and can assist advisers with bios and proofreading and other marketing support functions. This assistance can save advisers lots of time and help them present themselves more professionally.

We also now have a specialist in identity theft, fraud, and cyber security. This may not seem like a standard support function, but since electronic security is affecting our reps and their clients, we want to be a resource. We have created a prevention program and trained our staff to comply with federal regulations. Additionally, we are proactively working on resources and education to help protect our advisers and their clients.

IN CSS: What about technology?

JB: We moved our RIA platform to Fidelity in 2009 and our broker side in 2012 because we found them to be a great fit. They’re private, they’re driven by what their clients want them to do — which is how we work with our reps — and their technology is top-notch. But we don’t force technology on any of our reps. It’s never “either/or.” If they want to enter trades themselves on their iPads, they can; if they want to call our trade desk, that’s fine too. They know there’s always a live person here to help, who will go the extra mile in support of their practice.

IN CSS: With so many broker-dealers to choose from, why should an adviser consider Sigma?

JB: I’ll start with what’s probably the most unusual thing about us: Since our founding in 1983, we’ve had the same individual owner — Jerry Rydell. He started the firm with a vision of creating an environment where advisers would be independent, and able to do business with whoever they wanted, so that they could offer clients the best investment opportunities possible. He named it “Sigma” because he looked at the firm as a fraternity of representatives working independently.

Today, there aren’t many truly independent firms like us left. We serve 1,100 reps through Sigma Financial and Parkland Securities from our Midwest back office — which East Coast reps say they like, always commenting about how friendly we are — and we don’t have any proprietary products or promote specific products. We’re very careful about what we allow on our platform. We believe the thoughtful due diligence process we put products through has prevented many of the problems and losses that other firms and their clients have experienced.

Finally, since we have no plans to go public or sell the firm, we do have a succession plan. We’d be remiss if we didn’t. I’m one of three executives in our 40s who run the business and have been with the firm for 20 years or more. There’s a multi-generational approach within the firm that many people find very refreshing.

IN CSS: Anything else that sets you apart?

JB: Maybe it’s strange to talk about leaving before a rep even gets here, but if a rep decides to leave us and go to another broker-dealer, we don’t do anything to keep their clients or make it hard to leave. Sometimes they just feel somewhere else will be a better fit. Whatever the reason, we fully support them and their clients in the transition. We pay them for 90 days because we want the transition to be as smooth as possible, and we want them to know they can always come back. We’re like a twist on the song “Hotel California” — you can check out, and you really can leave.

IN CSS: How would an interested adviser contact you?

JB: We can be reached by phone at (800) 373-1612. Ask for me or anyone in Firm Development. Advisers can also email us at [email protected]. Finally, interested advisers can visit www.joinsigma.com.

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This is a sponsored special feature, developed by the InvestmentNews Content Strategy Studio, and supported by Sigma Financial Corporation.