When advisors contemplate a transition to a new firm, their minds are occupied with crucial considerations: the transition deal, deal economics, technology and platform capabilities, brand reputation, autonomy levels, the firm’s commitment to maintaining a stable GRID and fostering a positive culture. Therefore, evaluating a firm for a potential move requires a nuanced and subtle approach.
Let’s explore the critical factors that demand careful assessment:
- Client/Book Ownership: A pivotal factor to consider is who owns the client relationships and books of business. In an era of rapid change, uncertainties abound. Advisors must meticulously examine the contractual language to determine if they retain ownership. This knowledge becomes crucial in the event of unforeseen circumstances, ensuring the ability to bring their valued clients along.
- The Definition of the “Best” Firm: Like a coveted Rolex watch, everyone desires the best firm. However, what defines the “best” firm is subjective and depends on the advisor’s perspective and how it addresses their clients’ needs. While certain firms may possess renowned brand cachet, it is essential to discern whether this reputation translates into exceptional service. Stories abound of former advisors from a powerful wirehouse who likened the firm to a prestigious Rolex watch, only to discover that their experience mirrored that of an ordinary vehicle like a Prius. An advisor can have the “best” platform, but if the firm cannot provide the services that the client is used to, then what good does that fancy new name do for the advisor?
- Succession Planning: Contemplating emergencies or retirement is an unfortunate but necessary task. Advisors must ascertain the firm’s provisions for these scenarios. In an industry with an aging advisor population, evaluating a potential firm’s built-in retirement programs and emergency protocols becomes paramount. Are there guaranteed successors in place? Communicating such plans to clients assures them of a well-thought-out strategy, even in the worst-case scenario.
- Multiple Channels: Some firms offer both W2 and independent channels. Advisors should assess whether the firm provides both options and actively encourages transitioning between the two. Understanding the benefits of each option for the advisor and their practice is crucial.
- Future Economics: While advisors often focus on the initial transition deal, it is human nature to overlook long-term considerations. Beyond the immediate deal, it is essential to examine what future opportunities the firm offers for monetization. Will advisors have the chance to acquire equity stakes, partnerships, or client roster ownership? How do payouts evolve over time? Is the firm’s share warranted based on the value they provide to support and grow the business? Non-traditional wirehouse firms increasingly entice advisors with equity and partnership prospects. Evaluating such options can help attract and retain advisor practices.
- Referrals and Growth: It is widely acknowledged that referrals play a pivotal role in bolstering an advisor’s practice. Growth becomes a significant concern for many advisors, as GRID payouts are often linked to meeting growth targets. Some firms facilitate growth by providing referrals from investment banks, CPAs, and commercial/retail banks. When evaluating a firm, it is important to assess whether the new firm offers similar lead-generation support as compared to the advisor’s current situation. Additionally, understanding the firm’s GRID payouts and growth expectations, along with their frequency of change, is crucial.
- Operations and Compliance: Assessing the firm’s operational efficiency and compliance culture is of utmost importance. How burdensome is the process of getting things done? Red tape and stringent compliance measures can hinder an advisor’s productivity and ability to serve clients effectively. Understanding the level of support and assistance available, particularly for new advisors, is crucial. A supportive and responsive operational and compliance environment can significantly enhance an advisor’s practice.
- Firm’s Financial Position and Future Ownership: Market dynamics can shift swiftly and unexpectedly. Consider the case of advisors from Silicon Valley Bank and now First Republic who find themselves at JPMorgan Chase. Such transitions may result in changes to service levels, as the shift from boutique to mass-market can impact the white-glove service previously enjoyed. Who has ownership of the firm? Do multiple private equity firms own the firm? What are the firms’ next 5 and 10 year goals? Do they plan to go IPO? The uncertain nature of the wealth management industry necessitates assessing a new firm’s potential future leadership and adapting preparations accordingly. It is vital to anticipate potential changes and align one’s strategy accordingly. 2008 and 2023 has proven that No firm is too big to fail.
At The Gershman Group, we specialize in evaluating all these components. With our forty years of experience advising advisors, we are well-versed in navigating the complexities of the wealth management landscape. However, we also encourage advisors to seek input from multiple sources and trust their intuition. Just as in dating, finding the right fit is essential in finance. Aligning the advisor-client, client-firm, and advisor-firm relationships optimizes the potential for success.
With our expertise and guidance, we can ensure that your move to a new firm is a strategic step towards maximizing your success.