As the recruiting wars have intensified, advisors across the industry have begun to appreciate the ins and outs of transition packages. Indeed, while upfront recruiting checks continue to be a huge carrot, more advisors today are considering other factors just as much, including how technology and service will impact long-term profitability.
Even so, calculating the actual cost of a transition remains an inexact science.
The only way to gauge whether a move is a "win" for an advisor and their clients is to measure the practice's growth and profitability both on its current and would-be broker-dealer platform over, for example, a 10-year period and then compare the difference.
Of course, an advisor can only be on one platform at a time, so this is essentially an impossible exercise. In lieu of that, however, there are several questions advisors can ask themselves — and their prospective BD partners — to assess the potential hidden costs of a transition and gauge whether such a move will end up looking as good in reality as it does on paper:
1. How much will your business change?
In my experience, every advisor who has achieved long-term success in this industry has done so by customizing their practice into a fine-tuned machine for meeting the needs of the particular clients they serve. This means marshaling precisely the right people, technology, processes products and expertise to meet and exceed the expectations of their target audiences.
To the extent a transition process causes an advisor to change any of the above features of their business, it has to be viewed as coming with a hidden price tag.
What this means is that choosing between three or four different pre-set service configurations on a new BD's platform — and hoping that the new model is "close enough" to their own fine-tuned client service machine — may not be enough.
The best way to minimize the hidden costs of changes to an advisor's business model is to reduce those changes in the first place. Where possible, advisors should seek to work with firm partners willing to enhance their platforms to accommodate the advisor's existing business, whether that means onboarding new technology platforms, new product offerings or other features.
2. What's the long-term economic impact for clients?
Advisors can't honestly say they place their clients' best interests at the heart of everything they do if they don't consider the economic impact on clients as part of their transition decision-making process. For a move to be a long-term win for the advisor, it also needs to be a win for their clients.
