Five things to consider when thinking about partnering with a smaller broker-dealer

If the B-D and the adviser are no longer on the same page in terms of service or chemistry, it may make sense for the adviser to move on

Sep 14, 2015 @ 11:33 am

By Clive Slovin

Successful independent advisers never rest on their laurels. They are always seeking out new ways to better serve their clients and achieve their long-term strategic goals. Their efforts may be as simple as investing in new office space or ramping up their marketing and advertising efforts. Or, they might be doing something with greater impact on the core business, like adding one or more partners to the practice.

Whatever the case, the independent broker-dealer ideally serves as a key strategic partner, working closely with advisers to effect meaningful changes and help define the next stage in the development of their businesses. And if the broker-dealer and the adviser are no longer on the same page in terms of service or, more particularly, chemistry, it may make sense for the adviser to move on to another broker-dealer where the fit is better.


While the decision to change broker-dealers is always difficult, the current marketplace offers plenty of attractive options. On one end of the spectrum, are the so-called "mega-independent" broker- dealers, which will always have a place in our industry. They have the resources and name recognition to stay relevant in any environment.

(More: How the biggest independent broker-dealer networks stack up)

But successful independent advisers in search of a new broker-dealer partner would also do well to consider some of the well-positioned smaller firms within the industry. Despite the constant stream of overdone dire predictions about their viability, smaller independent broker-dealers have consistently remained very much a part of the marketplace. Indeed, many are thriving and prospering.

Partly, this is because the waves of rising costs and complexity, combined with the past financial crisis, eliminated the weaker small firms.

And just as importantly, successful independent advisers recognize that what this stronger crop of smaller independent broker-dealers may lack in size, they can more than make up for in other crucial areas.

In particular, following are some attributes that every small independent broker-dealer deserving of consideration by the successful independent adviser should possess:

1. A high level of specialization that aligns with the specialized needs of your practice: No broker-dealer, big or small, can provide expertise in every area. It's simply impossible given the complexities of our business. But it is possible for you to align with a firm that possesses expertise in your area. Take insurance, for example. Firms supporting such business must be strong in multiple capacities, including education, product selection, marketing expertise and underwriting. Some large-sized broker dealers simply take a “check-the-box” approach to insurance, having invested neither the time nor intellectual capital necessary to build expertise in this area. As result, they are unable to serve advisers and their clients on anything other than a superficial level.

2. Access to choice and flexibility with unique products and solutions: Just because a firm is big, doesn't mean it offers a higher level of support or that its services are better. The products and solutions offered by many large firms tend to be mass-produced, off-the-shelf templates, lacking ingenuity or imagination. As such, advisers affiliated with the larger independent broker-dealers may sometimes miss out on unique opportunities. Firms with more open product platforms often can win influence with product companies. The net result can be advisers having access to a greater number of products and solutions that are more customized to the unique needs of their clients.

3. A culture of true independence, not just independence for its own sake: While every firm in our industry pays lip service to enabling choice and offering advisers maximum flexibility, we all know such ideals can sometimes be elusive. Ultimately, there is one question that every adviser should ask a prospective broker-dealer partner: Where is upper management spending their time? The core mission of every true independent firm should be to support the needs of advisers and their clients. Day in and day out, that's where their energies have to be focused. Every business seeks to maximize profits. That's how the free market system works and there's nothing wrong with that. But it's always a bad sign when an independent broker-dealer champions short-term profit over fostering a culture of independence.

Of course, what doesn't matter can be as important as what truly matters.


During the recruitment process, independent broker-dealers will position various services or offerings as having enormous value that in practical terms are almost worthless. Advisers, therefore, also need to consider what broker-dealer attributes are not relevant when choosing a new firm.

(More: Should you go it alone or join a corporate RIA?)

The following are the most frequently touted by many firms, yet least relevant factors for independent advisers who are considering a transition:

1. Low prices, high payout: When advisers speak to industry recruiters, they almost invariably begin with questions about payout grids, affiliation fees and other business costs. That's a mistake. While it might sound counterintuitive for a cost-conscious entrepreneur running his or her own business not to focus on these issues, they most certainly should not be the main determining factors when choosing a new independent broker-dealer partner. What would happen if the low-cost broker-dealer is unable to adequately provide the products, services and support systems that will enable the adviser to grow the business and serve clients effectively? In such cases, a high payout or low-cost service will mean nothing, since the adviser's practice will more than likely struggle to maintain its existing relationships, let alone establish new ones. While price is important and should be considered, it's the long-term value of the relationship that will most benefit the practice, and, in turn, the clients.

2. Help desk: Firms need to have a complete set of support resources for their affiliated advisers, but prospective advisers need to be wary when too great an emphasis is put upon having a help desk or 1-800 number. It's far more valuable to have the accessibility of a member of the firm's management team, who can meet regularly with advisers in a one-on-one setting, than it is to have the immediate availability of a junior staffer. Each adviser's business is different, and the clients' needs are different. By getting to know the adviser's business in greater depth, the independent broker-dealer will do a far better job of anticipating and responding to that adviser's needs.

Choosing a new independent broker-dealer relationship comes down to one thing. It's not size. It's not scale. It's not resources. It's partnership.

Any firm can produce a client statement or offer simple marketing support. But only a select few have the experience, expertise and — quite frankly — the willingness to work closely with practices in meaningful ways that empower growth and deepen client relationships.

Though independent advisers may have to look somewhat harder to find such firms today given the level of consolidation that has occurred, they are still here — and they are as viable and strong as ever.

Clive Slovin is president and chief executive of The Strategic Financial Alliance Inc., a privately owned independent broker-dealer and registered investment adviser.


What do you think?

View comments

Recommended next


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