Look Before You Leap: Top Things to Consider Before Switching Firms

Perhaps you’ve been thinking lately that your current job may not be for you and you’d like to move on. Before you get overwhelmed by the emotional and financial implications, take a breath, relax, and read on to learn some important pointers to consider as you ponder your next move.

Consider your needs, the needs of your team, and the needs of your clients
Figure out what’s important to you. Do you prefer a large firm or small firm? Do you like your current business model or does something different appeal to you? Do you want to own your own business or work for others? What do you want to happen to your practice when you’re ready to retire? Where do you want to be in five to 10 years?

Also consider your clients—are you going to a place they will feel comfortable doing business? If you can’t justify why your move is better for you and for them, perhaps it’s not.

Anticipate business interruption
An advisor who is primarily fee-based probably won’t see as much impact on existing business, but dealing with the mundane tasks associated with switching jobs does affect your ability to get new clients. And someone who is highly transaction-based won’t initially have the time to do the transactions, said Scott Hanson, chief executive of Sacramento, Calif.-based Hanson McClain Advisors.

When he first left an independent brokerage in 2008 to start his own investment firm and RIA, Hanson had to spend a lot of his time with clients—both on the phone and in person—explaining the move, getting their required signatures, getting missing information, and collecting information that wasn’t required when the client originally became a client, such as a copy of his or her driver’s license.

“I knocked off about a quarter’s worth of production,” Hanson said.

Don’t underestimate the time it will take to transfer accounts
“It’s not just an ACAT,” said Lisa Roth, chief executive of Keystone Capital Corp., an investment firm in San Diego. There may be trustee certificates, trust documents, suitability files, new account documents, items that require a supervisor’s signature, and more that can hold up the process.

“It’s a significant administrative burden that reps tend to gloss over in the heat of the moment and then they come to regret it 90 days later when they’re still missing paperwork and signatures and as a result aren’t able to fully engage in their business,” said Roth, who is also the past chair of the National Association of Independent Broker/Dealers.

Indeed, it took Hanson of Hanson McClain Advisors about three months to get 80 percent of his business fully transferred and documented. “It’s been over a year for us and we still have some clients who are not fully documented yet.” (Less than 1 percent, but still.)

Be prepared financially
Before Ralph Courage started out on his own, he did a very detailed analysis into what everything would cost to get up and running from furniture to office space to telephones to compliance to computers. This type of preparation is particularly important if you’re starting an RIA. “If people don’t spend time understanding that, they can get into trouble,” said Courage, who runs Courage Partners, LLC, a Norfolk, Va.-based registered investment advisor and wealth management firm.

Also know it might be several months before revenue first comes in and that not all of your clients will sign on. Courage, for example, tried to be very conservative by estimating that only half of the assets would transfer.

“You’re going to probably experience some attrition—the question is how much and who,” said Tom Rozman, senior vice president of business development at ActiFi Inc., a Plymouth, Minn., consulting firm for financial advisors and institutions.

Remain open to the possibility of hiring extra staff
Look at your current platform and see which services are currently being provided. Then consider your new platform and where the gaps are. “That takes some careful planning,” said Hanson who had to a hire a chief compliance officer and a chief operating officer. He also brought in temps to help with the paperwork.

Careful planning of staffing needs is also important because the extra workload can take a toll on personal relationships and family. Having the extra staff can ease the burden, he said.

Consider the technology and products you currently offer
Consider what you have now and what you need to continue running your business as it is and grow it. Make sure the firm you’re going to supports the business you currently do and hope to do in the future, said Rozman of ActiFi. For example, if your business is heavily concentrated in fixed income or insurance, you want to make sure your new firm can support that. Also consider how portable your clients’ records are, which is a big issue, Rozman said.

Get your new firm’s approval for marketing and outside activities
Something you are currently doing might seem innocuous, but if you get your new firm’s approval, you might run into trouble, said Howard S. Diamond, managing director and chief operating officer of Diamond Consultants, a recruiting firm in Chester, N.J.

For example, he had a client who did a weekly radio show and had to negotiate with his new firm to allow that to continue. It didn’t derail the agreement, but it did hold it up a bit. He tells advisors if they have a question, ask, and to request that things be spelled out in the letter of understanding.

Get a lawyer
When you’re going independent, it’s almost a given that you’re going to need an attorney to help you through the process, but when you move between wirehouses, some advisors rely on counsel provided by their new firm. Don’t, said Diamond of Diamond Consultants. That attorney is being paid for by the new firm but can’t really negotiate the new firm’s documents on your behalf.
Having an attorney can also help you avoid scrutiny by regulators and your former firm when it comes to the thorny issue of what information advisors can take and use when they leave.

Consider the onboarding resources
Make sure the firm you’re joining will support you from the get-go.

“The firms that have good onboarding assistance and know what they are doing will make the transition easier for an advisor. It’s an emotional upheaval. There’s a lot involved,” Diamond said.