This is a time of peerless financial turmoil. Not only are the prices of stocks and bonds singularly volatile but so are the reputations of financial intermediaries. Last year, a major wirehouse was bleeding advisors as its write-downs surged. This year, that same firm has far outpaced its competitors in recruiting.
Distinguishing the stronger firms from the weaker has never been more difficult: This month's safe harbor — next month's road kill? That is the conundrum that financial advisors must ponder as they cultivate and protect their practices. More surprises lie ahead. Anyone who claims that the future of his or her wirehouse is assured is either engaging in wishful thinking or reciting the sales pitch du jour.
Here is what advisors need to do in determining whether to make a move:
1.) Assess motivations: Could the business benefit from a bigger cash cushion, or are clients no longer comfortable with the current firm?
For anyone seeking a lump sum payment to move, the time is now. As the bear market grinds on, firms will have less to spend and will tighten their criteria for deals. A shrinking wirehouse marketplace will only exacerbate that trend. And no matter how skilled the advisor, in a long-term bear market, trailing-12-months performance is likely to decline, which would diminish the value of any deal.
Jumpy clients are another very good reason to look elsewhere. Ideally, clients should view you as the calm at the eye of the storm; your home base should almost be inconsequential to them. But sometimes, even the strongest advisors can't overcome the objections of important clients who worry about the stability of any given firm.
2.) Think creatively about where the next move should be. Many contracts extend for nine years. Even with a hefty up-front payment, advisors need to be sure that they and their clients will be happy at the new home. Look beyond wirehouses; regional firms, independents and new firms are cropping up.
Brokers may want to look beyond the usual wirehouse suspects – perhaps a regional or independent firm would be a better fit. Upfront money is less generous but regional firms are not as exposed to the toxic investments that brought down the larger players. Advisors generally find regional firms to be more user-friendly. Turnover is much, much lower than at the bigger houses. Of course, they could be gobbled up by the bigger players. Nothing is risk free. Just ask any Madoff investor.
