There are few places where the competition is as cut-throat as on Wall Street. Interestingly, the competition for clients between advisors is only part of the story. Some of the most intense competition is waged when a firm tries to lure successful advisors from other firms to join their ranks. For the recruiting firm, it is a potential windfall of lots of clients at once instead of having to slug it out client by client.
And moving is a complex challenge. A successful advisor has hundreds of clients invested in hundreds of different investment products and strategies. The process is extremely disruptive – to both the advisor and their clients.
So why would an advisor want to voluntarily endure such a challenging and disruptive experience? There are 2 possible explanations. I’ll lay them out and you decide for yourself which one it is.
1. The new firm offers a more robust investment platform and a structure that has fewer conflicts of interest that may interfere with how the advisor serves their client, or
2. The advisor was paid a 7-figure bonus in the form of a forgivable loan and enhanced compensation during the period of transitioning clients from the old firm to their new firm.
Call me skeptical, but if the move included both of the situations described above, I am personally going to tend to believe the million-dollar bonus had a lot to do with it.
But what about the clients? Do they really benefit if they make the move with the advisor? Aside from the inconvenience of transferring accounts to a new firm, did the transition require any transactions that triggered tax consequences? Perhaps fees or charges of some kind such as early liquidation penalties?
The bottom line is that an investor deserves to have the full set of relevant information that may have influenced their advisor to make the change. And on that score, I can’t imagine anyone credibly suggesting that a 7-figure bonus was not relevant.
So if you get a call asking you to follow your advisor to a new firm, I think you should ask some very pointed questions to determine how much of this move was about you and how much was really about your advisor.