Whether advisors are breaking away or simply tucking into a larger practice, treating a transition as a transaction instead of a strategic move can become a disaster. Think before you leap.
Here at Beirne Wealth Consulting, we see a lot of advisors on the move as we roll out new offices across the country. Sad to say, quite a few of them make huge mistakes.
Often, these advisors are content to sign the offer that carries the highest payout. While compensation is a critical decision point, the immediate dollar signs shrink in the face of the overall value and long-term opportunity that a good deal should unlock.
Making a significant career move – breaking away from the wirehouse, tucking an independent practice into a larger RIA – requires a shift away from pure transactional thinking.
Do you buy the cheapest car at the dealership? It’s unlikely. Smart decisions are made on overall value, not just the sticker price.
On the other side of the deal, advisors should be asking what they get for the payout. Many times they aren’t offered much beyond an attractive lump sum and a nice split on production going forward.
The right decision should factor in these three questions. Naturally, we’re eager to talk in greater depth about how to apply the calculus to your situation.
1. Will your new firm invest in your growth?
Beyond paying you, a good organizational partner needs to be not only willing but eager to deliver guidance to help you gain clients and gather AUM. This extends to marketing support for events, your online presence, PR and anything else you need to take the business forward.
You’re more than a bolt-on acquisition and should be treated as such. If a potential partner is simply looking at your practice in terms of the assets you have under management now, odds are uncomfortably high that they’ll never see you as anything more.
It makes an enormous difference to accelerate a 10% growth rate to 20%, year after year. Across time frames as short as a decade, the slower-growing enterprise will double its asset base. An additional 10% compounded per year translates into quintuple the AUM after ten years.
You know the value of compounding and teach your clients about it day in and day out. Apply the lesson to your own business.
2. Will you chafe under uncomfortable restrictions?
While we do work in a highly regulated industry, a new firm’s compliance, oversight and overall management approach shouldn’t choke the life out of a business.
If you’re working with people, it should be in partnership with all the give and take that entails. Otherwise, the big payout you just received makes you an employee.
I see a lot of professional relationships that start out with one party signing over operational freedom in order to cash a check. Many turn adversarial once the money’s gone and the constraints are still in place, day after working day.
Look for an organization that first and foremost has the clients’ best interests at heart. When the objective is to deliver value all the way down the service chain, the intermediaries tend to be protected from mandates that serve the organization and hold everyone else back. Furthermore, if a rule clearly exists to create better client outcomes, it will be a lot easier to justify compliance – after all, if it helps your clients, it’s a good thing, right?
Avoid an organization that is overly conservative purely as a point of corporate pride. Innovation is healthy. Every internal decision should weigh the operational and regulatory concerns, finding the right balance in mitigating risks while also allowing the business to grow.
3. Will you want to get up and go to work every morning?
Many advisors dismiss culture as irrelevant to their career decisions, but while it’s hard to weigh the intangibles, it’s even harder to grit your teeth and work with a firm you hate simply because it offered you the biggest payout.
If you have ever worked for a bad boss, you know it becomes hard to get out of bed in the morning to go into the office. Very few signing bonuses can overcome the frustration a bad cultural fit can create.
We spend a majority of our waking hours working, so make sure it will be enjoyable. Advisors should make sure they are becoming part of a professional family, a collegial environment where they can build friendly bonds with the other associates. The culture can be aggressive or relaxed, ambitious or laid back, but it has to be a good fit for you.
Along these lines, search for a team that looks out for each member and mutually tries to help everyone reach their personal and professional goals. A little surface competition may be all right, provided an underlying climate of cooperation prevails. Positive collaboration and sharing of best practices can have a dramatic impact on an advisor’s overall success.
Steer clear of an organizational chart dominated by inpidual silos. You’re not joining an ensemble practice simply to be put into a box with other specialists. A strong partnership supports your weaknesses and leverages your strengths, helping the team achieve a lot more than inpidual members can on their own.
Bottom Line: The advisors who make decisions wholly on payout often find themselves wishing that they had done more due diligence before cashing the check.
The cost of a bad decision can be substantial. A bad fit can lead to low satisfaction levels and drain motivation, “flatlining” both the business and your personal resources.
Furthermore, it’s harder to back out of a firm than it is to jump aboard in the first place. Clients will wonder why you’re moving around so much. Technology may need to be abandoned after expensive training and integration with your existing platform.
About the Author: Jim Betzig is a Partner and Chief Operating Officer of Beirne Wealth Consulting, an SEC Registered Investment Advisor with $2.3 billion in assets under management. Jim specializes in working with both institutional and inpidual clients, assisting in financial planning, asset allocation, tax-free investing, manager searches and selection, and liability management.