As the former VP of Business Development for a small/medium sized broker-dealer, I worked with advisors contemplating this question all the time.
Do I join a broker-dealer home office directly and take advantage of a potentially higher payout without a middle man or do I “hitch my wagon” to a well-established OSJ/Branch network (network) and take advantage of the resources and scale my new network may provide?
As you could imagine in my role at this firm I had my answer down pat – “eliminate the middle man,” “let us do the supervision and let us pay for it,” “we provide all the practice management tools, technology and training you could want.”
Those are all very rational arguments built on solid industry data, but may not be true for everyone. In the words of Lee Corso, “not so fast!” I forgot to mention one minor detail – we didn’t have a network option! All our advisors were affiliated directly and were supervised by our home office supervision team…but I digress.
I am now three years removed from that role. Through the consolidation we are all accustomed to in our industry, I have seen many different affiliation models. I can honestly say no longer does one size fit all.
As our industry continues to evolve and mature the one thing that still holds true is the greatest thing about being an independent advisor is choice, while the hardest thing about being an independent advisor is, you guessed it, choice.
The choice to join a network or go directly to the home office many times comes down to payout (or said another way “show me the money!”). While it is true the independent broker-dealer space, whether home office affiliated or network affiliated, has been forced to compete heavily on price it cannot be the only consideration. Believe me payout is very important, but it should not be the primary factor in making your final decision as in many other cases in life.
Let’s look at six factors I feel are equally important in evaluating your affiliation decision:
1. INTELLECTUAL CAPITAL
In today’s market place advisors must focus on differentiating themselves. Whether through blogging, writing articles for publishing in the media, or unique client and prospecting events, you must develop unique processes and framework to standout. Top networks make it a priority to provide intellectual capital they have developed over many years to their affiliated offices.
What to Ask: Have you made the effort to hire a dedicated resource focused on building out platforms and services that I can replicate?
2. COMPLIANCE AND SUPERVISION SUPPORT
Most broker-dealer’s compliance and supervision teams are top notch and provide top level support to their affiliated advisors. With that said they provide this support typically from a far and to a vast number of advisors. There are major benefits in having a dedicated network compliance support team available. Benefits can include faster front-end review and processing
time, focused time and effort clarifying rule changes and a dedicated expert able to navigate the ever changing compliance and supervision systems of the broker-dealer.
What to Ask: Have you hired staff members focused on supporting the ever changing regulatory environment that have the ability to process paperwork in a timely manner as well as help me with complex situations?
3. OPERATIONS SUPPORT
On average for every $1 of expense in your business over $.70 goes to staffing. Labor, while your largest investment as a successful advisor, provides you some of your greatest returns. Again, most broker-dealers have good operational support. As with compliance, network level operations support is about leverage. Navigating a complex operations department can sometimes be daunting. Networks, depending on your affiliation with them, can provide a) support and training for your current and future staff to help them better navigate your broker-dealer, or b) can provide an operational team that can help you focus on your unique ability of creating and strengthening client relationships.
What to Ask: Have you developed an operational work flow and team that at the end of the day, can get my business processed faster than I could on my own? Do you provide different affiliation models that allow me to choose greater support?
4. PRACTICE MANAGEMENT SUPPORT
If I had a nickel for every time someone used the word practice management in our industry, I’d have a lot of nickels. Since I haven’t found a way to those royalties yet, let me share some differences in practice management offerings. While some broker-dealers provide insight into what other successful financial advisors are doing and give you tools and tips to help you grow your practice, there are some true innovative networks out there doing more. They are the ones that can truly assess where there are opportunities to streamline your operation and provide strategies for building your unique company. Most of us wake up every day managing the largest company we have ever managed in our careers; successful networks can help coach us along the way. Find the networks that have spent the money and time creating a practice management infrastructure. Why recreate the preverbal wheel.
What to ask: Have you hired a team that can keep me up to date on the latest tools and solutions to help my practice grow? Are they willing to sit down and help me assess opportunities for improvement in my practice?
5. BROKER-DEALER RELATIONSHIP
We all have been coached for many years to segment our clients. Said more bluntly – those generating us the most revenue get a different suite of services than those clients who are just starting to save or may not have every investable dollar with us. The broker-dealer service to advisors is no different. Broker-dealers typically invest in those offices that can create greater growth and leverage for them. As networks continue to grow and become tighter integrated with the broker-dealer it is likely that the broker-dealer will continue to provide the members of these networks with services that may not be available to most advisors.
What to ask: How long have you been affiliated with the broker-dealer? Do you have deep rooted relationship with upper management?
6. ACQUISITION/SUCCESSION SUPPORT
The numbers don’t lie. The average age of advisors in this business is 57 years old and aging and only about 2 out of 10 having a plan for their business in the event of death, disability, or retirement. Whether you are looking to acquire the practices of some of these aging advisors or
need to get a plan in place to protect you and your loved ones in case of an emergency, support is critical. The top broker-dealers have all made good strides in addressing this topic by providing support from legal documents to acquisition funding. While this is very important and many advisors are making strides in this area you must also have “boots” on the ground. For advisors looking to acquire a practice the key to success is having a dedicated resource who is focused on finding candidates and evaluating potential opportunities. For advisors looking for a continuity or succession plan you must have support. In most cases your practice is the largest asset in your “portfolio” and as you tell you clients, you need advice.
What to ask: Do you have staff who has first handle knowledge of completing an acquisition/succession and making it successful?
These six factors along with payout will go a long way in helping you determine the right way to affiliate in the independent broker-dealer space. It will help you find the right partner in developing your firm. While we all need air, water and shelter it is those things that differentiate one from another that truly help create value for your organization.
While finding a broker-dealer or network partner may be daunting, I have seen many advisors thrive in a new environment. Remember it is not the change that we fear it is the transition to the change that keeps us from finding a potentially greater environment.
ABOUT THE AUTHOR
Branch Development Director
Horizon Wealth Management
Chris’s primary areas of focus are practice development, acquisition, and succession planning as the Branch Development Director for Horizon Wealth Management. He concentrates his efforts on helping advisors grow their business by maximizing communication with clients and peers, leveraging the benefits the firm has to offer, and staying apprised of practice management trends in the industry.
Chris began his career in the securities industry in 1999 in the sales and marketing department of a securities firm. Prior to joining Horizon Wealth Management, Chris spent nearly three years at Cetera Advisors following a six year career at Pacific West Financial Group. He uses his background as an independent financial advisor to help advisors leverage their relationship with Horizon Wealth Management to grow their practices.
To Contact Chris:
425-691-8773 | phone Send Chris an E-Mail