Broker Check

Navigating the Broker-Dealer Transition

Insights from Advisors Who Have Made the Leap

By: Malcolm Thomas

When a financial advisor decides it is time to change their broker-dealer, for whatever reason—whether it's for a higher payout, better technology, or a succession opportunity—the biggest question that always looms over this decision is, "How am I going to transition my clients?" This question is often followed by others: "Will all my clients move their accounts? What paperwork will be required? How long will the transition take? And what will happen to my firm's revenue?" This process can be overwhelming, particularly for advisors who have not gone through it before. In fact, it often prevents advisors from changing broker-dealers altogether.

To get the real story behind what is involved in a broker-dealer transition, we asked 10 advisors who had changed broker-dealers in the past 12 months about their experiences. We wanted to know if their clients moved, if their revenue changed, what was helpful, what wasn't, and what advice they would give to other advisors planning a transition.

To level-set, all these advisors transitioned to Osaic Wealth as their broker-dealer and IFG as their OSJ. They came from different channels—Independent, Wirehouse, and Insurance BD—so the information they could bring and how they could reach out to their clients varied. Each advisor also worked with outside counsel to review their contracts and determine the appropriate way to discuss the transition with their clients.

Here's what these advisors had to say about some of the most important topics around changing broker-dealers:

Will my clients change broker-dealers? The short answer is yes! The percentages ranged from 75% to 100% for each advisor. A few reasons why clients did not move include: the advisor determined that the client was no longer a fit for their business model, the advisor did not solicit the client to move, or the client was included in a non-solicit from the prior firm. When asked what percentage of the advisors' assets under management (AUM) transitioned, the numbers were even higher, all above 85%.

How long did the transition take? While most advisors indicated that their transition lasted 60 to 90 days, many also noted that they had clients who continued to move their accounts 6 to 9 months after the initial transition.

When asked what aspects of their transition went well, the overwhelming answer was having people who were there to help, especially dedicated resources.   Hilary O’Malley, who transitioned to The Wealth Technology Group, said, "The most helpful resource during my transition was the team of people that guided me through the process, patiently answered my never-ending questions, and helped ensure that it was a smooth process for my clients." When transitioning to a new firm, there's a lot going on—you're trying to learn new processes, new technology, while also communicating with your clients about what you're doing and why. Having dedicated resources to guide you and your clients is of utmost importance, as well as having someone to turn to when something goes wrong, to help troubleshoot and resolve issues quickly.

When asked what aspects of their transition they would have done differently, the answers varied among advisors. Some would have changed their client communication strategy to focus more on letting clients know what to expect during the transition, while others would have changed how they facilitated paperwork back and forth with clients. However, in most cases, it came back to having a clearer understanding of the systems and processes for transferring clients' accounts. Robert "Rem" Cooper of Scenic City Financial said, "I would have liked to have a better understanding of the systems and processes, along with a prescriptive way of doing things. Once our team was able to see how everything worked, with the help of the IFG team, we were able to create a process that worked for our firm and our clients."

So, what happens to your firm's revenue during a transition? While there is obviously going to be a reduction in revenue during the initial transition period (30 to 60 days), we asked each advisor how their revenue would compare to before the transition after 12 months. 40% of the advisors indicated their revenue would be higher, while the other 60% indicated it would be the same.

Finally, we asked the advisors for one piece of advice they would give to an advisor considering changing broker-dealers:

Bobby Martin, MyPFA: "Be thorough in your research. Create a detailed spreadsheet of the pay structure, fees, subscriptions, etc. Leaving my old broker-dealer was a pretty easy decision once I did some homework. My pay structure and platform fees weren't competitive, and I was getting no assistance from an OSJ like IFG."

Joseph Jackson, Jackson and Associates: "Make sure your staff is prepared for the extra workload involved in a transition and ensure that the broker-dealer you are transitioning to has good support."

Rem Cooper, Scenic City Financial: "Make sure you get connected to the people who are going to help you through the transition. IFG and Osaic have great resources, but understanding what is available to you and who to go to is important."

Hilary O'Malley, The Wealth Technology Group: "My advice would be to have a strategic plan in place before making the move to ensure that clients have a straightforward experience with as little disruption as possible and to understand how they will be impacted by the transition."

Frank Hynes, Hynes Financial Partners: "Take deep breaths. It will all come together with the proper preparation."

The last line sums it up properly—everything comes together with proper preparation. In reviewing the responses from advisors, the following themes emerged: do your homework, prepare properly, ensure you have a team to assist you with the transition, and if you do these things, your clients will move, and you can use the transition as an opportunity to grow your business.

Having worked with advisors over the past 20 years and seen many successful and unsuccessful transitions, the key is upfront preparation. At IFG, when we work with an advisor to help them prepare for a transition, we break the planning process into four key areas: marketing, business setup, licensing, and client transition. We have found that this generally takes 60 to 90 days of planning to be done well.