Advisors' Moves, Clients' Choices

Understanding motivations, client impacts, and post-switch regrets

Ric Edelman:  It's Thursday, March 7th. On today's show, has your financial advisor switched to another firm? It's an increasing trend in the financial services industry, financial advisors going from one firm to another. You always have to ask yourself, why is the advisor doing this? Because they're invariably the advisor is going to ask you, the client, to go with them. So what's the background on all of this? It's a trend that has been happening for decades and it's growing in its frequency. Well, picture it from the advisors perspective. The financial advisor has you as a client and a couple of hundred people as well. And all together you might have invested $1 million with your advisor. You add it all up, the advisors managing 100, $200 million if they've been very successful in the business a very long time, and if their clients are very well to do, then the advisor could easily be managing 300, 400, $500 million in assets, maybe even more. The advisor is earning a certain amount of income based on the assets that they're managing. And along comes a competing firm. That firm reaches out to your advisor and says, why don't you leave your firm and come to ours? Well, why would the competing firm make that offer to the financial advisor? There's only one reason the competing firm wants not just the advisor. They want the advisor to bring along the clients. Meaning you. Well, why would the advisor make the switch if they're happy where they currently are? Well, the competing firm is clearly going to dangle a financial incentives, and it's not at all uncommon for the new advisor to be offered a higher income based on the amount of assets they're managing, even signing bonuses. 

That could be one or 2 or 3 times the advisors current income, just to make the move, with the expectation that the advisor will then ask you to move with them. A lot of firms have contracts with advisors where they're not allowed to go, or they're not allowed to solicit their clients if they do go. But a lot of advisors are ignoring those contracts or frankly, saying, I'm willing to engage in the legal battle that will result. And here we all are. So it's understandable why the existing firm wants to keep the advisor and why the competing firm wants to steal them away. And it's also understandable why the advisor is going to figure out what's best for them. But in all of this conversation, have you noticed I haven't mentioned you? What's in it for you? You have an advisor who I'm assuming you obviously like, or they wouldn't be your advisor. You know them, they know you. There's a long history there. Everything is running fine. There's no reason to upend this apple cart. But suddenly your advisor calls you on the phone or sends you an email and says, I've left my firm, I've gone to this new firm, and I'm inviting you to go with me. 

What's in it for you? Well, if you do go with the advisor, you get to stay with your advisor. Your advisor knows you very well and hopefully your advisor will keep your current investments intact so the move doesn't cost you anything. It's not like you've got to sell your investments and pay taxes on all of those profits, and buy a whole new slew of investments that you might not know very much about, and which might only be getting sold to you because the new firm wants you to buy them as opposed to what you've currently got. Of course, that's a big risk if you do go, and that's the first question you've got to ask your advisor. If I go with you to the new firm, are there going to be any changes? What is it that you're going to be doing for me at the new firm that you weren't doing for me at the current firm? And if you weren't doing it for me in the current firm, why weren't you doing it for me there? Why do you have to move to a new firm for me to be able to get whatever it is you're promising at the new firm? In other words, what's in it for me to go with you? What will I incur in expenses and fees and hassles? New investments, tax implications. What's in it for me to go with you, other than the fact that I know you and like you and we have worked well together, what else is in it for me? What's the downside as well? On the other hand, if you stay with the existing firm, you lose your existing advisor because the current firm is going to have to replace your advisor. 

That's now your old former advisor. You now need a new advisor. The good news is, depending on how your firm operates, the new advisor may be someone who's been in the firm a long time. It may be someone who's very familiar with the investment philosophy and strategies that your old advisor was giving you. And the new advisor, in other words, can pick up right where the old advisor left off. It's kind of like getting a new waiter in a restaurant. You don't have to change tables, you don't have to reorder the food. You don't even have to figure out what kind of food you want to eat. The new waiter just operates seamlessly, picking up where the old waiter left off. The fact that the old waiter left you don't really care. So you've got to make that decision and figure it out. Are you better off staying where you are or going with your current advisor? And to help you figure that out, you should talk with two people, not your current advisor. Sure, talk to your current advisor.

In addition to talking to your advisor about this, there are two others you ought to talk to. You need to talk to the management of the new firm, with the advisors going, let's hear it from them. And you also need to talk to the management of the firm you're with. Now. Let them make their case as to why you should stay. You've already gotten the pitch from the old advisor why you should go with them. Talk to the current firm about why you should stay, and that will all help you figure out what is in your best interest. But one really important thing to keep in mind. There's a new study out there on this subject about advisors who have sold their practices or have made the jump to moving their practice to a new firm. And the new study says that a lot of these advisors are unhappy with the decision. They made more than 300 advisors who switched firms or sold their practices within the last ten years were surveyed, and half of them are unhappy with how things turned out. Turns out that a lot of the advisors who sold their practices were retiring, and they wanted to cash out. 

That makes sense. But the others who simply wanted to monetize the value of their businesses, they figured they'd make the shift to some bigger company, and they'd keep working there and continue to serve their old clients. But has it worked out? Not really. 93% of these advisors say they are dissatisfied with how things turned out. They say they didn't get the support and resources they were promised by the new firm. 97% say they've experienced conflicts with the new management, 19% said they've had operational and. Clients problems, 40% say the money they ended up earning wasn't what they were expecting, and 93% of these advisors have complained about their deal to other advisors. Only 29% say they would recommend to other advisors that they do what they did. Well, you really got to think about that. If your advisor has been with the existing firm for a lot of years and they are suddenly going to a new firm that they've never been, they're doing it on a bunch of premises, that the deal will be better. The grass is greener syndrome. Is it going to work out the way that they are hoping? Especially if they're asking to drag you along with them. 

If 93% of these advisors who have done this over the last ten years are complaining about their experience, and less than a third of them would recommend that other advisors follow suit, you really have to wonder if your advisor makes the decision to make the switch, whether you ought to switch with them as well. You're listening to the truth about your future. If you're a financial advisor, let me share with you the latest trends and investment strategies generative AI, exponential tech, estate planning, longevity, crypto, and a whole lot more. All of this at Wealth Management Convergence this Sunday, March 10th through Tuesday, March 12th, in West Palm Beach, you'll meet some of the most successful advisors and Rias in the country, and you'll leave with real practice building ideas to help your business grow, plus plenty of CE credits. Register now. The link’s in the show notes, along with the discount code WMC2024 exclusively for advisors. Listening to this podcast, you'll save $100 on the registration fee. Look forward to seeing you there on tomorrow's show. Since we're on a dissatisfaction riff, we're going to talk about whether college graduates are dissatisfied with their degrees. 

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