The Top 5 Reasons Advisors Change Broker-Dealers
by Jonathan Henschen, CFS and featured in Producers Web
Changing broker/dealers is a choice of last resort. Just the thought of it can cause an advisor’s guts to churn. For an advisor even to consider changing broker/dealers means that the pain threshold has reached disturbingly high levels. The causes of this pain are many, but here in descending order are what I’ve found to be the top five reasons advisors find it necessary to make that decision.
1. Unhappy in their current relationship
Frequently, relationship issues are caused by consolidation of insurance companies and banks, where significant management changes have altered advisors’ home office contacts. For example, when an insurance company buys your broker/dealer, you’ll experience a six-month to one-year honeymoon period where things are left alone while the new owners decide what they want to do with the broker/dealer. Consolidating back-office functions with other broker/dealers owned by the insurance company (if not the entire broker/dealer) are typical cost-saving moves that insurance companies will often implement within two years of acquiring a broker/dealer. Back-office staff are either laid off or shuffled around to different departments. Overall service deteriorates, with advisors who call in reaching mostly voicemails. Many of the staff don’t have answers to advisors’ questions, since they are either new employees or new to their departments, which results in their constantly being in new learning curves. Caught in this cycle, advisors become extremely frustrated. They no longer have the “go-to” people they could count on for trouble-shooting, and response times increase dramatically. It’s becomes the “perfect service storm.”
2. Want better business support services from their new broker/dealer
Advisors are quite self-sufficient in using broker/dealers for compliance and executing business. As advisors increase production, they increasingly need to manage their time. In their quest to save time, they will seek out practice management and marketing services from their broker/dealer. “Practice management” is a term thrown around in our industry with many advisors not knowing what it’s really means. Simply put, practice management is broker/dealers helping advisors run their offices efficiently by providing help with hiring and training staff, helping in your business and marketing plans, doing client surveys and helping to integrate technology into your business model. For marketing, broker/dealers can help advisors to network in with accountants and attorneys, providing seminar platforms with guidance and training, and helping with brochures and name branding. One broker/dealer that is active in practice management and marketing makes a compelling argument: “Why quibble over a couple percent of payout when our practice management department helps give you up to 30% – 40% more time in front of your clients resulting in production increases of 30% – 50% or more?”
3. Better technology
A few years ago, many advisors were looking for broker/dealers that provided consolidated client statements. Today, most broker/dealers have either Albridge or Investago. The new technology reps are chasing (but to a lesser degree) is the “paperless office” with electronic signatures. Many broker/dealers now work with laser apps, with laser fiche coming on strong. I get some advisors wondering what software a firm makes available, but this area is increasingly commoditized, with firms open to your working with most any financial planning, estate planning, asset allocation or contact manager software. Most broker/dealers are now making much of that software available at a 20% – 40% discount.
4. Better product offerings
Mutual Funds, Variable Annuities and Variable Universal Life products are also to a large extent commoditized in the Independent Broker/Dealer Channel. Currently, many advisors are being forced to run Equity Index Annuities through broker/dealers, only to learn that many carriers they’ve worked with are not on their new broker/dealers’ approved list. Other product areas advisors are changing broker/dealer over are selection of Advisory platforms and alternative investments. Advisors may have a particular separate account manager or third-party money manager they want to work with, but their broker/dealer is not open to adding additional managers. In alternative investments we’ve seen a large up-tick in advisors seeking out firms with expertise in Oil & Gas Partnerships, Futures Funds and REIT 1031 programs.
5. Higher Payouts/Lower Expenses
Advisors doing large amounts of Advisory business have figured out that they can find firms with much lower administrative fees on wrap accounts, and those with their own RIAs can get higher payouts on the advisory portion of their businesses. It’s common for advisors to be paying 20-30 bsp. on advisory platform administrative fees, with many firms now making the same administration available for 5-10 bsp., or less.
For advisors grossing in the $50 – $150K GDC range, we frequently get requests for firms with lower expenses on E&O Insurance, monthly fees and technology fees. It’s common that we can cut their E&O Insurance costs in half and get rid of monthly fees, while keeping payouts the same or even increasing them.
The Grass is, Indeed, Greener
One area not on the Top Five but worth mentioning because it is becoming a trend, is Advisors leaving firms that work on an OSJ (Office of Supervisory Jurisdiction) platform. What advisors are seeking are broker/dealers willing to supervise them and their reps through the broker/dealer’s home office. Their motive is not only considerably less work for the advisors, but more important than that, lower liability. The dilemma for OSJ’s is that compliance has become so complex and paperwork-intensive that it is leaving Advisors less and less time to spend in front of their clients. Couple this with the compliance liability of the advisors they oversee, and you can see why this is such a growing issue.
Whatever the reasons why advisors are looking for a change, they don’t need to feel trapped. With over 500 Independent Broker/Dealers out there, the choices available to Advisors today are amazing. Once in awhile I’ll hear advisors comment that “The grass isn’t greener at another firm”. I disagree with that statement so strongly that the tag line on the home page of our firm’s website, www.findabrokerdealer.com is “The Grass Can Be Greener!”
If you’re dissatisfied with your current broker/dealer relationship, start looking, because the Grass IS Greener.