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Industry rags are buzzing about wirehouses slashing payouts and advisors retaliating by taking a hike.
Kind of…maybe…
Breaking away is a messy business divorce — and, just like divorce, millions of people say they want one, but far fewer file the petition or make it to the courthouse.
Despite what industry thought leaders would like us all to believe, I’m not convinced the “advisor breakaway touché” is actually better for most wirehouse reps. You don’t want to go through re-papering, losing 30% of your client base, and then finding out that where you are isn’t much better.
Let’s face it: Transition means dealing with a ton of yucky stuff. Are you really willing to do all that will be asked of you? How quickly the righteous fade.
Get the raw truth by asking yourself these six questions.
1. If I go to a small or mid-sized broker dealer, am I really going to get along with the owner?
Yup, you’ll get a more personalized experience and be a part of an actual company culture rather than the corporate machine. You may have more freedom to let your own brand flourish, but you still have to gel with the company sponsoring your series 7.
Here’s the story: these small- to medium-sized broker dealers were often started by one entrepreneur, or a group of them, who have their own ideas, just like Morgan Stanley and Merrill Lynch, about how they want things to go.
That’s why people start their own firms. Remember?
Ask yourself, do I really understand what the owner’s vision for the company is and how he/she is going to expect the representatives to act, perform, and represent themselves to the world?
- Is there suitable compliance support?
I’ve seen some small- to mid-sized broker dealers with compliance loopholes big enough for a 747 to fly through. In one case, I was asked to publish social media postings and had to get approval from a compliance officer who could barely spell “AOL.” He didn’t get it and was constantly asking me the same questions over and over again. Scary to think that this person is supposed to be the one between the advisor reps and the FINRA arbitration committee.
Everyone bellyaches about how tough wirehouse compliance is. I agree that in some instances (example: you can’t use LinkedIn messenger) it’s ridiculous. But the other end of the spectrum is far less appealing.
Make sure the firm has an experienced compliance officer who knows enough about the laws governing the specific direction you want to go with your practice. Don’t assume that all of them do.
- After all the costs I didn’t anticipate, is this really going to amount to more money?
Let’s face it: although most advisors brand the transition as working in favor of clients, the reality is that it works in the advisor’s favor too – financially. And in a big way, or else not a single advisor would do it.
Take a good look at your financial blindspots. Is it likely that you’ll have to say goodbye to more than just those annoying clients that you’ve been trying to show the door? Is your clientele likely to be as loyal as you think, especially if this isn’t your first re-papering you’ve asked them to go through?
It’s human nature to want the same resources you had at your old firm. It’s the style of life to which you and your clients are accustomed.
Does your cost projections account for that or are you assuming the bare minimum? How much is it going to cost you to keep up with innovation after your initial shell out – complying with cybersecurity and DOL requirements and paying employees with COLA adjustments, for example.
Hidden Ladders costs money.
Riskalyze costs money.
Black Diamond costs money.
The compliance support costs money.
A nice cheerful person to answer your phone costs money.
Are you really going to be shelling out far less? Even so, are you going to be happy with all of it coming directly from your pocket? Some people aren’t comfortable spending money even if the value justifies the cost. Some people are just not spenders.
- How much do I need to interact with other people on a daily basis? Which kinds of people?
Independence is isolating.
Are you going to be happy going to an empty Regus office everyday where your next door neighbors are the 25-year old founders of an internet app that allows you to check your flight baggage five hours early and a woman who sells homemade scented soaps?
If you’re used to the mahogany conference room table and the lobby with the television blasting MarketWatch, being away from a finance culture is jolting. It may demotivate you. You may feel lonely.
- Can I handle it if nobody knows the name of the company I work for?
One breakaway advisor told me that prior to leaving his wirehouse, he had a conversation with his wife who felt slightly lukewarm about the idea.
“I’ve never heard of them,“ she said, “How are you going to make it with some puny no-name firm behind you?”
Harsh.
Do you have a way of explaining that what you offer is going to make up for your lack of name recognition? Is what you’re planning to offer really going to be that mouth-watering?
This goes to a deeper question. Are you ready to be your own brand and do all that it takes to pull that off – from naming your practice, getting a logo, finding market niches, developing messaging campaigns targeting those pockets, taking the time to create the content to fulfill that goal, etc.?
- Is my brand strong enough to compete with my custodian?
Oops, I wasn’t supposed to say that. Now custodians aren’t going to want to hire me as a keynote speaker.
The truth is that while many of the custodians offer resources and programs to accommodate breakaway advisors, they are competing with them at the same time (with their own internal sales teams.) The roboadvisor that your custodian is offering you is also being pitched directly to retail investors, for example. The large custodians also have their own internal advisor teams.
Ask yourself if you are prepared to fight to prove your value versus what clients can get from the de facto provider. They’ve got billion-dollar marketing budgets and scaled-up solutions backed by more training and resources that you can bring to the table.
How strong is your brand? Or more importantly, how strong can you make it?
Sara’s upshot
I’m all for independence and freedom. But not everybody is as bold. It’s not the right fit for every (self-proclaimed) underpaid wirehouse rep who has been slighted by this year’s payout slashes.
However if you are considering it, you may want to join me and eMoney this December 19th as we’re having a webinar on how to do it if you decide to go this route. Click here to register.
Sara Grillo, CFA, is a top financial writer with a focus on marketing and branding for investment management, financial planning, and RIA firms. Prior to launching her own firm, she was a financial advisor and worked at Lehman Brothers. Sara graduated from Harvard with a degree in English literature and has an MBA from NYU Stern in quantitative finance.
Read more articles by Sara Grillo
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
