With Finra's bonus disclosure moving ahead, practice how to break the news to clients

Focus on the positives, but be ready to discuss the details.
MAY 08, 2014
Advisers need to practice the pitch they'll use to persuade clients to switch to a different firm with them, because those conversations could get much more difficult. If the Financial Industry Regulatory Authority Inc. bonus disclosure rule were approved, advisers on the move to a new Finra-regulated firm wouldbe required to disclose to clients incentive compensation they received of $100,000 or more. That disclosure would have to be made in writing, but advisers who first communicated orally with clients about the move would have to make those disclosures during that initial conversation. (See also: Finra bonus disclosure rule goes to the SEC) “Any sophisticated client has known that when advisers move they are getting paid,” said recruiter Howard Diamond, managing director of Diamond Consultants Inc. “Advisers should have an upfront conversation about the compensation and be transparent about what's going on.” Talk to clients as one business owner to another, he recommends. For instance, advisers may want to say, “Just as you are entrepreneurial and looking to grow your business, I think you can appreciate that I am as well.” For clients who seem particularly concerned about what may look like a large payout, explain more of the details of the transaction, Mr. Diamond said, such as saying it's a loan and that the client isn't paying for it. The focus of such conversations should be on what benefits the new firm offers for the client, he said. Make the motivation and priorities clear by saying something such as, “I would have made the move even without the money because I believe it's the right firm for you and for me.” Mr. Diamond said advisers will need to get good at having these conversations. He expects some will “have a couple stumbles along the way,” but practice will help the adviser become more comfortable with the discussions. Kevin Dinino, president of KCD Public Relations Inc., which helps advisers develop transition marketing plans when they switch firms, recommends advisers be proactive and positive about the incentive compensation, perhaps describing how they intend to use the funds to advance the business. For instance, “Our firm got $X for transitioning broker-dealers, and the reason behind that is we're a growing company that wants to recruit more advisers so that we'll have more scale.” Some clients may require a more detailed explanation. For example, when mentioning reasons such as how the bonus compensation will allow the adviser to reinvest in the business, clients may want to hear specifically about plans to hire another account person or to invest in the firm's marketing or communications plans, Mr. Dinino said. Most clients will want to hear this news straight from the adviser, not in a note sent through the mail, he said. Practice articulating the value proposition of the new firm, recommends Mark Elzweig, an executive-search consultant and president of Mark Elzweig Co. For instance, if an adviser is going from a wirehouse to a regional brokerage, point to lower client fees and more access to home-office product specialists, he said. The proposed rule change could stop some advisers from moving firms during periods when markets are performing poorly, Mr. Elzweig said. During such a period, advisers may not want their clients, whose portfolios are down, to see that their adviser just received a big bonus.

Latest News

Judge OKs more than $90 million in settlement money for GWG investors
Judge OKs more than $90 million in settlement money for GWG investors

Mayer Brown, GWG's law firm, agreed to pay $30 million to resolve conflict of interest claims.

Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs
Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs

Orion adds new model portfolios and SMAs under expanded JPMorgan tie-up, while eMoney boosts its planning software capabilities.

Retirement uncertainty cuts across generations: Transamerica
Retirement uncertainty cuts across generations: Transamerica

National survey of workers exposes widespread retirement planning challenges for Gen Z, Millennials, Gen X, and Boomers.

Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future
Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future

While the choice for advisors to "die at their desks" might been wise once upon a time, higher acquisition multiples and innovations in deal structures have created more immediate M&A opportunities.

Raymond James continues recruitment run with UBS, Morgan Stanley teams
Raymond James continues recruitment run with UBS, Morgan Stanley teams

A father-son pair has joined the firm's independent arm in Utah, while a quartet of planning advisors strengthen its employee channel in Louisiana.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave