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When Financial Advisers Move, Should Clients Follow?
There are crucial questions investors should ask about a move’s
impact on their investments, costs
![](WSJ%2020151009%20Wealth%20Advisorsx40.png)
For a move to be a success for the broker, it’s crucial for a
large number of clients to also switch firms. PHOTO:
ISTOCKPHOTO |
By
Michael Wursthorn
Oct. 9, 2015 7:00 a.m. ET
Some financial advisers
take as long as two years to negotiate and prepare for a job change.
But their clients don’t usually have that much time to decide whether
to stay put or follow, out of fear of a gap in which their portfolios
won’t be closely monitored.
In making the decision,
investors should keep one thing in mind: While the adviser’s move may
result in better service or other advantages for clients, as advisers
invariably say, having a large number of clients come along is
definitely in the adviser’s best interest.
For a move to be a
success for the broker, it’s crucial for a large number of clients to
also switch firms. When brokers move to another big brokerage, the
financial incentives are typically based in part on bringing along a
certain number of clients and meeting specified revenue targets.
Similarly, those who join
the growing ranks of independent advisers
need a certain number of clients to follow in order to generate the
same, if not more, revenue.
The Financial Industry
Regulatory Authority, Wall Street’s self-regulator, has been trying to
steer investors toward crucial questions they should ask about a
move’s impact on their investments and services. Earlier this year, it
issued a proposal that would require securities firms to send Finra-generated
materials to the clients of brokers they recruit. The materials would
include a list of five questions investors should consider asking
before deciding whether to follow an adviser.
The proposal only
applies to securities firms, so an adviser launching an investment
advisory firm registered with the Securities and Exchange Commission
or state securities regulator wouldn’t be obligated to send these
materials, if the proposal went into effect.
Still, many of Finra’s
questions are applicable and serve as a good guide for investors faced
with this decision:
‘Could financial
incentives create a conflict of interest for your broker?’
Brokerages commonly pay lucrative recruitment bonuses to experienced
brokers who join a firm. Advisers who launch independent companies
don’t stand to receive the same benefit, but those who join
established advisory firms may receive some type of financial
incentive. “Whether you stay or go, you should carefully consider
whether your broker’s advice is aligned with your investment strategy
and goals,” Finra says in its materials.
‘Can you transfer all
your holdings to the new firm? What are the implications and costs if
you can’t?’
Some mutual funds, annuities and proprietary debt products may not be
as easily transferable as plain-vanilla stock or bond investments. “In
that case, you’ll face an additional decision” about whether to
liquidate the investments or keep them at the old firm, Finra says.
‘What costs will you
pay—both in the short term and ongoing—if you change firms?’
Advisers who move will likely be operating under a different pricing
structure, making it important for clients to fully know how their
costs will change.
‘How do the products at
the new firm compare with your current firm?’
Not all firms offer access to the same investment products. Clients
“should feel comfortable” with the products an adviser offers as an
alternative to previous holdings, Finra says.
‘What level of service
will you have?’
Clients should also compare the service, support and online resources
offered by the adviser’s new firm.
Finra is in the process
of reviewing its proposal following a public comment period.
Write to
Michael Wursthorn at
michael.wursthorn@wsj.com
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