Troubling surprises advisers discover when switching firms

Advisers on the move didn't expect as much paperwork, or the emotional blows

Jul 12, 2016 @ 11:46 am

By Liz Skinner

Even though advisers often ruminate for many years before going independent or even changing brokerages, many are still surprised by certain realities of the shift.

Most of the difficulties relate to administrative responsibilities and back-office details, such as the paperwork load and trouble with investment changes, according to Bob Oros, executive vice president and head of the RIA segment for Fidelity Clearing & Custody at Fidelity Investments.

“Oftentimes it's hard to imagine until you're actually in the thick of making those calls to clients, re-papering them and moving their investments to understand what really goes into it,” he said.

Fidelity surveyed brokers moving between brokerages — those moving to the independent channel and registered investment advisers moving among independent firms — to discern the most unexpected challenges of their moves.

The amount of paperwork involved was the top unpleasant surprise, followed closely by the length of transition and challenges preparing clients for the switch to another firm.

Two other difficulties that surprised advisers who moved were technology issues and difficulties transferring investments.

Recruiting professionals agreed that no matter how much they prepare advisers for the paperwork load, it's still a shock.

(More: Cost of independence)

“I think it's because so many firms may be completely paperless for what it takes to normally open accounts and transfer funds,” said Barbara Herman, senior vice president at adviser recruiting firm Diamond Consultants Inc. “But the account transfer process, what a client has to complete to move their accounts, is still paper-driven.”

Two other surprises can be emotionally difficult for advisers on the move.

The first is the hostile reaction they can receive from the firm they are leaving.

Recruiter Danny Sarch, founder and owner of Leitner Sarch Consultants, said he warns advisers to prepare for the worst.

“Don't underestimate the rancor or aggressiveness of your old firm in pursuing your clients,” he said. “Some people you thought were your friends may now be saying mean, to downright fraudulent, things about you upon your departure.”

With every move, advisers are baffled that certain relationships didn't follow them, Mr. Sarch said.

“Advisers typically take about 90% of what they want to take,” Mr. Sarch said. “But that leaves 10% that could be a surprise.”

(More: Advisory firms threatened by attrition as advisers retire or go independent: J.D. Power)

The other surprise involves which clients ultimately join the adviser at the new firm.

At the same time, some clients who the adviser may expect to drop off, perhaps because they've had a contentious relationship together, unexpectedly transfer their assets to the new firm.

The blow isn't really about the amount of assets that transfer over, because it's generally close to what advisers expect, Ms. Herman said. The difficulty is with the unexpected individual decisions, or rejections, from certain clients.

“Our experience is that the client surprises go in both directions,” she said.

The overall workload advisers face in their new roles also is often more significant than expected.

Advisers who move to an independent option, especially, are often shocked by the magnitude of work that falls on them and their teams, Ms. Herman said.

The early weeks of the move are especially challenging.

“Any move is really a huge undertaking,” she said. “Advisers have to know they'll spend a couple of months working around the clock, even if they do everything they can to prepare for it.”

(More: For some advisers money not motivating factor to go independent)

Mr. Oros said advisers switching firms need to think differently about their roles. It suddenly isn't just about serving clients.

“They need to think in a different way about governing their firms and creating role definitions for themselves in, oftentimes, what is a new business model,” he said.


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