Find the Perfect Broker/Dealer Match
by David Port and featured in Boomer Market Advisor
October, 2007:
The question greets visitors to the Henschen & Associates Web site in big, bold letters: “The grass can be greener, but over which hill?”
It’s much more than a rhetorical question for advisors who are assessing the state of their broker/dealer relationships or contemplating the wisdom of seeking greener pastures with an entirely new firm. Given the transitional headaches that seem inevitably to accompany a change in broker/dealers, reps who have endured the process say the overall proposition offered by the broker/dealer to make a switch must be compelling.
“It is a huge undertaking for a rep to change broker-dealers in today’s environment”,” says Cliff Oberlin, CEO of NRP Financial, an independent broker/dealer based in Bryan, Ohio.
“I wouldn’t want to do this again,” says Gail Harrower, who earlier this year aligned her Portland, Oregon-based practice, Harrower Financial Services, with a new broker/dealer, the second time she has made such a switch. “It was difficult for me and clients don’t love the transition either.”
Having resolved last year to part ways with her firm, Harrower enlisted Minnesota-based Henschen & Associates and its president, Jon Henschen, CFS, to match her with a new broker/dealer, rather than tackling the potentially time-consuming and mind-scrambling due diligence process herself. Henschen, whose firm places advisors with independent firms (it’s presently aligned with about 75), says finding a broker/dealer with exactly the right combination of attributes is no easy task for reps who undertake the process themselves.“The right broker/dealer is out there. But they all say they have the best technology, the best everything, which makes it hard to discern what the right fit is for you.”
What’s more, says Oberlin, the right fit varies from rep to rep, depending on individual strengths, weaknesses and strategic priorities. “It comes down to whether a broker/dealer will be able to take you where you want to be with your goals and objectives.”
While the broker/dealer selection process is a highly subjective one, a checklist of factors tangible and intangible advisors should weigh as part of the evaluation might include the following:
A match in strengths. “We are a broker/dealer that specializes in retirement plans,” says Oberlin, “so in our case it’s about finding people who want strong support in that area. Broker/dealers are doing whatever they can to separate themselves and develop specific niches like that. It’s important for reps with a specialty to know they can find a firm that shares their specialty.”
A match in culture. “Initially, I was attracted to my broker/dealer because they are small like I am and they are local,” Harrower explains. “For me it’s easier to deal with a small broker/dealer as opposed to one with 6,000 or 7,000 reps. I feel I get better attention and support with a smaller firm, and that’s important to me. Because there’s less bureaucracy, it’s easier for me to get things done. And because they are based here in the Pacific Northwest, they have name recognition with my clients, which is important.”
Upfront enticements. Perks such as transition loans and bonuses are appealing to some advisors. Others, like Harrower, prefer to see them passed on to the reps other ways, such as in the form of lower expenses and fees for software, E&O insurance, etc. “With a lot of broker-dealers, it seems like the bonuses, trips and stuff have gotten out of hand. I appreciate the fact that these aren’t big things with my firm.”
Transitional support. Most firms have transition specialists to support reps during the changeover. “You want a transition team that understands your business and can get your accounts over without much downtime,” says Oberlin.
Strength of back-office operation. Sometimes a broker/dealer which seems right on the surface might have flaws that reveal themselves upon closer examination. Fast response to inquiries and requests, solid technology and training, the ability to produce user-friendly client statements and the availability of paperless forms and statements are among the hallmarks of a solid back-office operation, says Henschen. Oberlin recommends reps pay any prospective firm an HOV (home office visit) prior to committing to a relationship. “A lot of times one look at the back office lets you know it’s not the place for you.”
Technology. Technological needs and skills vary widely from rep to rep and practice to practice. Tech-savvy reps will want their broker/dealers to provide cutting-edge technology that other non-techies would never consider using. Whatever the case, says Henschen, it isn’t enough for a firm to merely provide technology tools. “Just plopping new technology in a rep’s lap doesn’t do any good. You have to show them how to use it, too.”
Practice management support. Some reps look to their broker/dealers for tools to help them run their practice — client surveys, staff hiring, business plans and the like. Others prefer autonomy in that regard. If practice management isn’t one of your strengths, consider a firm that can help.
Compliance. With stricter regulations come greater compliance burdens. Some broker/dealers are better equipped than others to handle the compliance load for their reps. “I believe the No. 1 job of a broker/dealer is to keep your license clean and to do all they can to protect you,” says Oberlin.
Compensation. If protecting reps from regulators is job one for a broker/dealer, “No.2 is to pay commissions accurately and promptly,” according to Oberlin. It’s reasonable to expect a firm to pay its reps twice monthly; some pay weekly via direct deposit.
Product diversity. Sophisticated investors often demand sophisticated investment tools — private equity instruments, alternative investments and the like. Advisors who have (or aspire to have) that kind of client should align with a broker/dealer whose product offerings range from the very basic to the very complex.
Marketing. Reps who are challenged to promote themselves and locate enough quality leads to sustain a practice might find a match with a marketing-savvy broker/dealer. Some firms provide their reps with leads in targeted market niches, says Henschen. “That can be a quick, effective way for a rep to get new clients and grow a practice.”
