People change jobs and employers many times during their career. Reports show this can be as many as 12 times in a career lifetime, meaning every four years or so most people are working at a different firm. Financial advisors are no different than any other occupation and they too change employers from time to time.
When your advisor changes firms however, there are a number of critical decisions you may end up needing to make. Accordingly, you should be prepared to ask a number of questions when you learn your advisor has changed firms.
Motivations of Your Advisor
Like anyone, when an advisor changes firms the reasons can be either purely for money or dissatisfaction with their boss or the firm itself, or something unique the new employer is bringing to the table or a combination of all.
Everyone appreciates a raise, so sometimes an advisor is recruited to join a new firm purely for compensation purposes and there is nothing wrong per se with this. Other times an advisor has had a strained relationship with their firm for a variety of reasons and seeks a more well-suited firm for them. Sometimes the advisor is terminated and must find a new advisory firm to join. We will go into this last iteration in a moment.
Regardless of the reason for a new firm, you the client and account owner must approve and sign the new firm documents if you want to stay with your advisor.
Politics of the Advisory Firm
Many investors are not aware of the politics and frequent legal issues involved when advisors move from one firm to another. Generally, if your advisor works for a firm that is regulated by FINRA (commission-type firm), the firm may have paid a recruiting bonus years ago to bring her the firm, may restrict what kind of communication they can have with you while they are in the process of leaving, and may be quite aggressive in keeping you, the client, from following your advisor to the new firm.
Conversely, if your advisor works for a firm that is not FInra regulated, these types of behind-the-scenes pressures usually don’t exist, although news of this type of conflict is beginning to appear.
Questions to Ask Your Advisor
If you learn your advisor is leaving, make sure to ask these questions:
- Have you left of your own volition, or were you asked to leave? If the latter, ask for details. Please note that the advisory firm almost always has to update the advisors public record, but it can take many weeks or longer for the public database to show their stated reason for termination.
- What is the impact on me, the client, of you the advisor moving? If I choose to follow you, will all my securities be transferred? Proprietary securities cannot move to another firm, so they either have to be sold, or you need to keep that account open for just the proprietary products.
- What does your new employer NOT offer that your old firm offered?
- Are their new services and products that your new firm provides?
- Who else from your group (if there were others) have also joined you on this move?
- Who is the firms’ asset custodian? (if not a household named firm) What information can you provide about the custodian?
Red Flags and Risks
If you are ambivalent about following your advisor, be aware of the following:
- If your advisor has joined the new firm many weeks ago and you are just hearing from him now, you could be perceived by your advisor as a low priority client
- The old firm may be contacting you about an advisor at the firm that wants to manage your account. Before agreeing to use the new advisor, check out their history on the public regulator database linked above
Regardless of your inclination to go or stay, it is a very important decision to make and be sure to ask lots of questions and be very clear on what the new firm and old firm offer, and how any change will impact your assets and future plans.
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