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Registered Rep - November 19, 2008
If You’ve Got Leaving On Your Mind,
Who’s Going With You?
Keeping
your book of clients intact when switching firms has
never been a cakewalk, but it sure isn’t getting any
easier. Down markets—especially this one—aren’t exactly
the best time to break news of a move to already
panicked clients. More than ever, advisors should be
prepared for a fight, whether they’re bailing for an RIA,
an independent b/d or a wirehouse.
Advisors and recruiters estimate, on average, that
anywhere from 60 percent to 90 percent of an advisor’s
clients move with them to a new firm. Danny Sarch,
founder of Leitner Sarch Consulting in White Plains,
N.Y., says FAs trying to estimate their client retention
potential only need “to be honest with themselves about
how they got the client in the first place, and the
nature of the relationship at the time of their move.”
If you lose a lot of clients, are the economics of a
move worth it? One Merrill advisor cites a large team in
his office that just accepted an offer from UBS for 260
percent of trailing 12-months production, but if they
leave 40 percent of their book behind, that changes the
math of the deal quite a bit, he says.
Timing is everything. Take this story told by one of our
advisors from Registered Rep.’s forum. After 25
years at Morgan Stanley, advisor X resigned to go to
Merrill Lynch. Advisor X left Morgan Stanley the Friday
before Merrill Lynch announced the sale to Bank of
America. He managed to move about 60 percent to 70
percent of the clients he wanted to keep in the end, but
he ran into a number of stumbling blocks in the process.
In addition to having to answer questions from clients
such as, “Why do I want to move to Merrill Lynch, aren't
they 'bankrupt'?", Advisor X’s income has suffered
because clients were sluggish to make the move citing
everything from, “Let’s wait till after the holidays”
to, “Let's move but keep everything in cash until the
market ‘recovers.’”
And then there are the legal risks—especially if the
firms involved are not signatories to the broker
protocol. A pact between several wirehouse,
broker/dealer and RIA firms, the protocol stipulates
that signatory firms will refrain from taking legal
action against an advisor who takes basic client data
with him when he moves to other signatory firm.
“The protocol gives some clarification and guidance as
how to go from one protocol firm to another,” says
Stuart Meissner,
a securities
arbitration attorney at Stuart D. Meissner LLC.
But if you’re not going to a protocol firm, “there is no
guidance,” he says, “which means you have to be careful
what you do—how you transfer clients over, how you
solicit clients.” In addition to being careful about
taking any paperwork or documents related to clients,
Meissner says advisors who are moving should first
review their employment contracts,and the extent to
which any non-compete clauses in those agreements are
enforceable.
Take Andrew Kaiser: When Kaiser left UBS in 2006 to
launch his RIA, Mountain Hill Investment Partners in
Atlantic Highlands, N.J., he says he was expecting a
fight from his firm—and he got one. “The important thing
to remember is that the firm believes brokers don’t own
their own business when they move from firm to firm. The
firm owns the business and they own the client—brokers
will have to fight for it,” says Kaiser.
Kaiser says that when his clients in the fee-based
program moved their accounts over to him, UBS charged
them a full year’s fee (he moved in March)—a penalty
stipulated under the small print in the contract the
clients signed when they set up an account. “I talked
to my clients and told them, ‘Here is what they are
going to do to try to retain your business, here is what
they are going to say, none of it is going to be nice,
but you can follow me and make a judgment call and that
is how we left it,” Kaiser says. In the end, he managed
to keep 100 percent of the assets that he wanted to
keep; some of his clients stayed at UBS, but he says
they were either clients who didn’t contribute much
revenue, or clients he no longer wanted.
If advisors are well prepared, they can have a
successful move in a down market—even when they make a
big move to independence. “Some reps may be reluctant to
test their client loyalty,” says Bill McGovern,
president of B/D Search, a consulting and recruiting
firm based in St. Petersburg, Fla. “The other side of
the story is that it is a great time to tell clients
you’re making a change—‘we’re going to go do business a
little different than we did in the past, we are not
going to go follow the lead of the wirehouse firms.’ So
I think it is a great time to sell the story about
moving and becoming more independent if the brokers are
willing to go there.”
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