Advisers leave assets behind when switching firms

Hiring firms are often eager to announce the assets under management of a new hire, but how much of that money actually transfers over?
In many cases, advisers and brokers are finding that about 20% of assets are left behind in an average move between firms. Proprietary investments, banking and lending products and some illiquid alternatives can keep clients tied to the former firm longer, industry observers said. In addition, advisers take the opportunity to shed some of their smaller or less welcome clients, and some clients may prove harder to sell on a move than expected.
“What typically ends up happening is you have a few surprises,” said Scott Abry, a former complex manager with Smith Barney who now heads Steward Partners Holdings’ adviser consulting unit. “Someone you thought wouldn’t [transfer] does and someone who you thought would doesn’t.”
The benchmark percentage is reflected in a recent Aite Group study, which showed that independent firms acquiring a practice retained about 76% of the clients in what was considered a successful acquisition where the firm reported being “very satisfied.”
Most clients will transfer within the first three months of the move, and generally advisers should look for about 80% by the six-month mark, Mr. Abry said.
“If you’re five months in and only 60% of assets transfer, unless there are good reasons like [proprietary] money managers or alternatives, then you should be concerned,” he explained.
It can be more complicated and take more time to move larger clients over, especially if they have loans out at the adviser’s former firm, according to Bill Willis, head of recruiting firm Willis Consulting.
“Lending is among the stickiest of relationships,” Mr. Willis said. “People are afraid to move assets out of a place where they have borrowed money, and if you do take those assets out the rate of interest might go up.”
It may also depend where the adviser is moving. For some clients, a broker at a well-known firm may have to spend more time explaining a move to a small, lesser-known shop. Other clients may welcome the move, however, so it’s hard to say whether the 80% mark changes if the adviser is going from wirehouse to wirehouse versus wirehouse to a registered investment adviser.
“If you go independent, there’s so many colors of the rainbow,” Mr. Willis said. “It’s hard to make a definitive statement.”
The goal is that once you’re at your new firm, you’re able to grow assets beyond what you had before by adding new accounts or building on existing clients, according to Mr. Abry.
Many of the firms that offer large upfront recruiting deals, for example, have benchmarks of 130% to 140% of assets after the first year.
“What will happen is, once you’re at a new place you get so energized that inevitably you end up getting more assets either from existing clients or from a referral,” Mr. Abry said.