Broker Check
How to Choose a New Firm and Why it is Critical to a Fiduciary Duty

How to Choose a New Firm and Why it is Critical to a Fiduciary Duty

December 08, 2020

A little over a year ago I made a change in firms. It was one of the most difficult professional decisions of my life and one that had become unmistakably necessary. As I grew increasingly aware that I was running a business and that this business – my business – was designed to serve clients in their best interest, my convictions around leaving my then current firm became inevitable. I was certain that the better I could do this, the faster my business would grow while improving the industry’s reputation with clients and lawmakers. If I could create a great experience with compelling results, I would attract excellent clients. The right course of action was clear, but the destination was not.

The purpose of this article is to not only help others in my situation find clarity and conviction around their own need to change, but to help educate advisors on some of the criteria I found essential to arriving at the best destination for me and my clients and why it is critical to a fiduciary duty.

The beginning of the journey was rooted in my desire to run and control my business, to serve my clients and their families with unrivaled excellence, ethics, and compassion. In my original firm, I had experienced much success and recognition and it seemed possible. I had begun my career on stage in the Top 3 new advisors regionally during my first 4 years and spent the last 5 in the top 2% of producers in the company – this entailed exclusive membership to all that achievement offered (e.g. priority access to home office services, annual trips for the top producers only, etc.) I was recognized and served as a subject area expert acting as the agency LTC Specialist and Annuity Specialist. These accolades and accomplishments, which are in a sense an impartial measure of success, were fading in importance and began emerging as impediments.

As I built this practice over a decade and a half, I found myself facing some predictable challenges and some emerging challenges. What had once been a company, where excellence was strictly measured by performance and calculatable results, was being reduced to office politics and compliant personalities at [my] local and corporate level. Top producers were facing increased insurance sales expectations that could be perceived as having a real impact on exercising fiduciary responsibilities for advisory clients. This piqued my conscience, and I began researching the real or alleged situation.

When it became clear it was real for me, I thought fixing it was the right thing to do. Why not try and make it better? I consider myself a loyal person so that seemed to make sense, but I quickly learned that trying to fix something over which I had little control was not achievable. A TED talk solidified that feeling – “stop trying to fix it and go build something great!” My goals and vision were no longer aligned with the company’s and the increasing (soon to be codified in the updated agents’ contracts) pressure to sell insurance was a direct afront to my fiduciary responsibility to my advisory clients. Time to move on. But where would I go? And how would I know if I had arrived at the right/best destination? This meant sailing into uncharted territories and facing the unknown.

Being highly analytical, I began exploring investment firms across the country, interviewing them, and compiling data. This data turned into a spreadsheet that listed all the characteristics I wanted not only for myself but also for my clients. This move was ultimately for them. I created a rating system for my own weighting based on my subjective criteria:

0 = Terrible (I could not justify giving something a ‘1’ if it was terrible/off the table)
2 = Good
3 = Excellent

I then doubled the points if it was very important to me. I then divided the total points by the total possible points to get a percentage and therefore a grade. This was what made sense to me in order to take my subjective criteria and somewhat objectify the outcome.

I knew I was missing out with my old firm but was shocked to find out that quantitively it only had a score of 15%. That was a massive ‘F’.

One of the firms, with whom I had a very favorable experience (we will call them Firm 1), was a significant improvement at 83%. This corresponded with my gut which was that it was a solid ‘B’ based on my criteria. This was true for me, but for others Firm 1 was an A due to differing priorities and preferences. Again, the spreadsheet represents a compilation of factors, criteria and potential issues I consider(ed) important and weighted according to their importance to me. Each advisor considering a change in firms can modify according to his/her subjective needs.

I found that there were specific areas that had focus for me and were what I needed to get to an A:

  • Independence – My original firm’s recruiting carrot was always that you “owned your own business” and “built your own practice, book and clientele.” This was farcical at best. I paid my own rent, hired and fired my own staff, and paid all my expenses, yes, but when it came to moving my book, it was suddenly not my book – it was “theirs.” Their clients, their accounts, their database. After 17 years of building that book, and the blood, sweat and tears that went into establishing those relationships and gaining my client’s trust and business, it was “my” business. That was an absolute deal-breaker if I could not own my own data and clientele. Period.

  • Software (e.g. eMoney) – Access to leading, industry-specific software was either forbidden, or allowed but without integrated. I wanted the ability to build my own software stack rather than to have it all worked out for me. (I like the iPhone because it’s closed and works, but with a firm, I wanted an Android – open and inexpensive.)

  • Portfolios and Holdings – portfolio construction was available but limited in terms of holdings. Weighted holdings of individual equities, for example, was not allowed in the advisory space and was required to be moved to and held in brokerage.

  • Fee Schedule – I wanted control over my fee structure. My firm’s fee schedule was graduated. In many cases, the fees were automatically set and clients lost were penalized by downturns in the market. As the account balance dropped, they may have actually dropped into a higher fee tier.

  • Program Fees – Every firm has layered fees, but my firm’s fees were high, not fully disclosed/accessible, and layered onto top of home office and other administrative fees. While Firm 1 was a massive improvement from where I came from, the structure still did not work for me.

  • A Relationship – I wanted more than a corporate culture. I sought one that cared for the advisor and one in which there were people who personally cared for me and my success.

  • Insurance Resources – At the time, this was still a critical part of my business and I wanted a firm that could guide me through the transition and still had insurance sales as part of the business model.

These were just some of the many criteria on my spreadsheet. The Firm 1 recruiter was hugely supportive and assured me I would know it when I found it. By chance, an assistant came across an article in Financial Planning about an advisor that I knew of who had left my old firm. This caught my attention because the advisor was a legend and when he left, it sent shock waves through the system.

When I scored this firm, it came in as a 94% and had all the things that were important to me. This made it easy to quickly decide to move, sign the contracts and start preparations. Pulling the trigger was hard and it hurt to leave behind almost 2 decades of my life and coming on the heels of losing our 18-year-old daughter. It took a few months, but we wrapped up the transition:

  • Resigned.
  • Moved to temporary space.
  • Called and emailed all our clients to let them know of the change.
  • Sent out the paperwork to open the new accounts and move the money.
  • Reached out to relationships whose assets I did not manage to let them know of the change. This resulted in a large amount of new business. People were now open to a conversation with someone who “did not work for an insurance company.”
  • Learned all the new software. I went to the eMoney conference where I not only learned to master that software, but learned of other software packages like Riskalyze, Y-Charts and WealthBox all of which we eventually added.

Amazingly enough, we ended up transitioning 83% of my book, which is exactly the average amount that advisors move. Very quickly we were back to whole and by one year we over 140% the size of when we left!

More importantly, I have been able to serve my clients at a whole new level. My ability to plan and manage investments are dramatically improved. My goal is for my clients to be happy and I appreciate their feedback. Most importantly they are providing me with referrals. Seeing what this change has meant to my clients and their ability to design a plan, identify their goals and execute on steps to work towards their goals has given me a new perspective.

I did not realize the depth and breadth of the issues, until I did. I am now of the opinion that every advisor has an ethical and moral duty given to them by their fiduciary capacity, to not only make sure investment decisions are in their client’s best interest, but that the platform on which they serve them is also in their best interest. The platform will be different for different advisors and clients, and that is ok – we all have different priorities and goals. The obligation remains, however, because of the level of trust our clients put in us.

Now that the log jam has been cleared, I have far more energy because I know I can implement my ideas. I have gone from frustration to happiness. I am happy with my clients, with investment performance, my software stack, my office space, my business card, my team. I am by far, that happiest professionally I have ever been. I have gone from vainly trying to fix what was broken, to building something great!

While there are a lot of emotions and work in this decision, the payoff is well worth the relatively small investment. May you have the courage, competence, and knowledge to set sail in whatever direction benefits your clients the most!