Every so often I am called upon to debunk a number of myths about switching firms. In September 2004, I wrote my first “Of Myths and Moving” column. In March 2007, “Of Myths and Moving: Revisited” was published in these pages. With all of the recent changes to the brokerage landscape, it seemed a good time to reconsider industry myths both new and old.

MYTH 1: “The wirehouses are a dying breed; they are broken beyond repair.” “The reports of my death are greatly exaggerated,” Mark Twain once quipped upon hearing that his obituary had been printed in the New York Journal. Wall Street's wirehouse firms could say the same. While no one would dispute that there has been considerable movement from the wirehouses to other channels such as RIAs, regionals and independent firms, the wirehouse firms are still thriving. Certainly, they have trimmed their ranks by forcing out lower level producers, cutting payouts and support staff. But according to Discovery Database, wirehouse advisor departures have dropped dramatically from one year ago. In January 2010, wirehouse advisors represented just 15 percent of all rep movement, as compared to 40 percent in January 2009. Moreover, all of the wirehouse firms are aggressively hiring first and second quintile advisors, as well as young rising star candidates. According to a recent Cerulli Associates report, the four remaining wirehouses still control approximately 50 percent of advisor-managed U.S. assets, which amounted to around $4 trillion in 2009.

MYTH 2: “The deals will keep growing; I should wait for them to rise before I move.” Recruiting deals are unlikely to get any bigger. At 330 percent of 12-months production for the best advisors, they are currently more aggressive than they have ever been. Meanwhile, the upfront money being paid (120 percent to 140 percent of trailing 12 month's production) remains exactly what it was almost two years ago. If the advisor fails to meet any of his pre-defined benchmarks, he does not receive any further transition payments. If anything, the deals are likely to come down.

MYTH 3: “If I leave my firm, my clients won't follow me.” According to UBS' Robert McCann, brokers who leave UBS take more than 80 percent of their clients' assets with them. From conversations that I have had with advisors that I have moved, I believe it is closer to 90 percent for most wirehouse advisors. But if you believe that your best clients are loyal not to you but to your firm, you may have a problem. To assess the loyalty of your clients, examine the length of your relationship with them, the depth of that relationship, the portability of the products they are invested in and your own performance history.

MYTH 4: “Getting slapped with a TRO doesn't mean you will go out of business.” I am not a lawyer and not dispensing legal advice (you should speak to your own attorney on stuff like this), but, I will say that normally, a TRO (temporary restraining order) only precludes an advisor from contacting clients he served at his old firm. It does not stop him from prospecting for new clients and, most important, does not prevent his clients from contacting him. Further, courts are hesitant to keep someone from earning a living and will generally endeavor to do what is equitable for all concerned.

MYTH 5: “If I join or start an RIA, I will have to give up my commission business.” Hybrid firms that do both RIA fee-only and commission business make up the fastest growing channel in the financial advisory industry. Many RIA custodians have either started their own affiliated broker/dealer or made arrangements for a “friendly” b/d to hold a rep's license, while a number of independent b/ds also allow their advisors to operate under an in-house RIA or set up their own.

MYTH 6: “I am not entrepreneurial enough to be independent.” Being a business owner is not for everyone. Fortunately, there are avenues to independence that allow advisors to take advantage of the necessary infrastructure and support with operations and compliance, practice management, performance reporting, portfolio management and financial planning all being taken care of by others. Advisors could plug into an existing independent b/d or RIA, who specialize in helping advisors transition their practices to an independent format.

There are always a multitude of questions that advisors have when deciding about changing firms. Asking the right questions and making sure you have all the facts early on is one of the best ways to assure that you are making the right decision at the right time for you and your clients.

Writer's BIO

Mindy Diamond
is president of Diamond Consultants, of Chester, N.J., which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com