What if Your Financial Advisor Changes Firms?

More financial advisors are leaving big Wall Street wirehouses to go to smaller firms or start their own firms. They have a number of reasons for making the change, but most say they are fed-up with continuous headlines that document company scams and deceptive sales practices. They can’t change their firms’ business practices so their only choice is to change firms.

All advisors claim they change firms so they can provide higher quality services to their clients with no conflicts of interest. This is true half of the time. The other major reason is the advisors may make more money at the new firm, a lot more money.

You may or may not know the real reasons why your advisor is changing firms, but you still have to make a major decision – follow the advisor or stay at the advisor’s previous firm and be reassigned to another professional.

Following are four questions you should ask your advisor. His answers will help you make your decision.

Question one is do the old and new broker/dealers participate in the Protocol for Broker Recruiting? If the answer is Yes, your advisor can change firms without threat of lawsuits or arbitration. If the answer is No, following your current advisor may be complicated and messy.

Question two is whether the advisor is receiving any bonus money or advance payments to change firms. Ask him to answer in writing so you have a record of his response. If the answer is Yes, there is a good chance the motivation for change is money, in some cases a million dollars or more, and not providing higher quality services to you. If the answer is No, there is a better chance he wants to do a better job for his clients.

Question three is whether your advisor will receive increased payouts at his new firm. Payout is the percentage of the revenue (fees or commissions) that he generates from your assets that he gets to keep. That percentage might be 40% at a major firm and 80% or even 90% at a smaller firm. This is because small firms offer higher payouts that are partially offset by reduced support.

A fourth question is the investment choices that are available to you at the new firm. Do you have unlimited choice or are you restricted to limited choices that benefit the advisor and/or his firm. For example, an insurance company owns your advisor’s new broker/dealer and your choices are limited to products that are produced by that company – even if they are inferior and over-priced. You want unlimited choice so you can choose the best products.