On Sept. 1, 2004 the Dow Jones Industrial Average closed at 10,168; Bernie Madoff was still preying on unsuspecting clients in what would turn out to be the largest Ponzi scheme of all time; and my inaugural “Career Moves” column, Of Myths and Moving, appeared in REP. magazine.

A lot has happened in the past 10 years. Back then, advisors would tell me to call them back when the deals reached 200 percent of trailing 12-month production (now deals are at 300 percent); the mention of a custodian brought to mind the gentleman who cleaned high school hallways; and those who were with independent firms were seen as second class citizens by their big firm brethren. Given my personal milestone, here’s a look back at the myths on moving that I discussed in 2004 and how my advice has changed.

Myth 1:

There is a magic production level I must attain before I can switch firms.

What I said then: Waiting to make a move is not always a smart move. Indeed, the fact that an advisor's book is not growing fast enough might be a sign that a change of firm is in order. For instance, a firm with more proactive branch management might help the advisor grow his book faster, or perhaps a bank brokerage with its deep referral sources could help build the client base. In any case, the question should not be, “What is my current level of production?,” but rather, “How might my production be improved with a move?”

What I would say today: There is no “magic” production level that advisors must strive to meet. The size of one’s book or the amount of assets under management might come into play if you are thinking of moving to a firm that has minimum production levels (such as Goldman Sachs) or caters to high-net-worth clients. It also comes into play if you are thinking of going independent where you would need reliable revenues to realistically sustain your business. It really comes down to a few questions: “How unhappy am I at my current firm?”; “Can my current frustrations be tangibly ameliorated if I moved to a new firm?”; “Would my clients benefit if I made a move?”; and “Where is the place where I can best grow my business?” The longer you stay at a firm waiting to achieve a certain production number, your length of service (LOS) also increases and might make you less desirable to a new firm.

Myth 2:

I must limit my search to wirehouses when considering a move.

What I said then: There is so much more to the brokerage industry than being a W2 employee of a wirehouse. When brokers look under the hood of boutique and regional firms, they often find more flexibility, greater access to senior management, higher payouts, more autonomy, comparable research support and generous transition packages. The bank brokerage and independent channels are other options brokers should consider.

What I would say today: Back in 2004, 95 percent of all of the financial advisors that we worked with made a move from one wirehouse or regional firm to another. Any suggestion to the contrary would have been met with much skepticism. But the move to independence, either to an independent broker/dealer or the RIA space, is not just a fad. In the last several years, firms like HighTower Advisors, Focus Financial Partners and Dynasty Financial have solved for many of the perceived hurdles of going independent, including upfront money and turnkey access to technology, back office, and platform. Meanwhile, regional firms such as Raymond James have dramatically stepped up their game and made tremendous headway with the advisor population, who might have once only considered going to another wirehouse. As I said in 2004, advisors must take the time to become educated about the ever changing landscape in the financial services industry. It is very much a seller’s market.

Myth 3:

If I can get a transition package, I should move.

What I said then: As a general rule, brokers should move at least once in their career, but almost never more than three times. The main reason to move is that a book of business represents a monetized, saleable asset, and those who stay with a firm for an entire career lose the opportunity to cash out on this equity. To be sure, each move must be approached carefully, and the benefits must be clear. Lastly, each move should be made as though it will be the last. This ensures the motives behind moving are valid ones.

What I would say today: An advisor’s move should never be just about the money. When I wrote my first column, transition packages for top firms hovered at around 100 percent of trailing 12-month production and average advisor production was under $500,000. Accordingly, when an FA moved, he did so for a far smaller amount than a $1 million plus advisor could receive today (north of 330 percent of trailing 12) to make a move. That said, even with these mega-deals being offered, advisors must be pragmatic about their decision to move. Making a move is not easy. And it should be done for the right reasons—inability  to grow your business, client dissatisfaction, loss of faith in firm leadership, desire for more control, etc. Any move must be accretive and serve the best interests of your clients.

Myth 4:

The biggest transition packages go to those brokers with the biggest books.

What I said then: Deals across Wall Street are currently the biggest and best they have ever been, if you fit the right profile: Transition packages are best for brokers from wirehouses or regional firms who have not been with more than three firms in the past 10 years, who have clean compliance records and who have a return on assets at or near one. Also important: a minimum of 30 percent in fee-based business and gross commissions in excess of $400,000.

These brokers are receiving 100 percent to 120 percent of trailing 12 months upfront, 70 percent to 80 percent in cash, and 20 percent to 30 percent in stock that vests over seven years, plus additional bonuses at 12 and 24 months.

What I would say today: Today’s deals make those offered in 2004 look anemic. Back then, a 125 percent deal was seen as the outlier, with a good portion paid to the advisor in company stock. Today, for a first quintile advisor, the deal could be up to 350 percent of trailing 12-month production with perhaps 150 percent paid in cash up front and the balance paid, in cash, for achieving various asset and production bogies over a five-year period. (Firms will also reimburse for unvested deferred compensation.) The question is, where will deals go over the next 10 years as the regulatory environment changes and the independent landscape creates more competition for top advisor talent?

Myth 5:

I'll get cleaned out by my current firm if I try to jump ship.

What I said then: There are a number of strategies that can help a switching advisor protect his book. First, though, make sure to approach the change of firms in a professional manner: Do not leave in anger, and never badmouth your former employer.

Always plan to resign as late in the day as possible on a Friday. If you do, the soonest your present firm could get a temporary restraining order (TRO) would be the following Monday morning. (Note: Contrary to popular belief, holiday weekends often are a bad time to resign, because clients are less likely to be reachable.) The idea is to get as much time as possible to contact clients and have them sign account transfer forms.

What I would say today: Four words: “Protocol for Broker Recruiting,” which is also celebrating its 10-year anniversary. The Protocol was a game changer in the advisor recruiting world. First entered into by UBS, Smith Barney and Merrill Lynch in August 2004, it put the kibosh on most of the temporary restraining order litigations that firms filed against the departing advisor in an attempt to have that advisor reach out and solicit his client base. The Protocol essentially provides that if an advisor leaves a firm, and does it in a certain prescribed fashion, he can take names, addresses, phone numbers, email addresses and account titles of the clients he served and not be sued by his former employer for doing so. The advisor can also solicit clients even if there is an agreement with that firm that prohibits them from doing so. It unlocked the handcuffs that were keeping many fearful advisors at their firms. 

 

Mindy Diamond is President & CEO of Diamond Consultants in Chester, NJ, a nationally recognized boutique search and consulting firm in the financial services industry.