Are independent wealth managers that punish exiting financial advisors really independent?

12:53 02 November in In the News by rafferty

October 28, 2022

After being diagnosed with a brain tumor, fighting in arbitration with a fellow advisor and their employer, Commonwealth Financial Network, and winning a $175,000 defamation award from the brokerage, financial advisor James “Jay” Womack said he spent nearly $200,000 on the legal case.

The cost was worth it, he said. Womack accused Commonwealth and the other advisor, with whom he worked closely, of collaborating to thwart a succession plan for his practice and taking over his book of clients. Commonwealth, Womack alleged in FINRA arbitration, defamed him by falsely telling his customers that he had made misrepresentations about the credit quality of bonds held by “an elderly client” and in a state unemployment benefits claim, along with violating email and text messaging guidelines.

To industry recruiter Jon Henschen of Henschen & Associates, advisors are taking a risk when they sign up for Securian and other wealth managers that are owned by insurance companies or other investment product manufacturers. The loss of five branch managers in a year represents a serious problem for a wealth manager of Securian’s size, Henschen said.

“Representatives attending annual conferences notice year to year if advisors are leaving,” he said. “Outflow can perpetuate outflow as advisors start to question why the firm is shrinking.”

He calls Securian and rivals such as Northwestern Mutual, Equitable Advisors, Lincoln Financial Network and Principal Securities examples of “captive” wealth managers — ones that push advisors to sell the firm’s products to clients.

In general, independent advisors expect higher pay, greater freedom to serve clients as they see fit and corporate cultures designed to assist independent entrepreneurs.

But that’s not available at many captive firms, especially when advisors decide to leave for greener pastures, according to Henschen. Such firms “pull out the big guns” when large practices or branches decide to go to a new brokerage, Henschen said.

“That’s the danger of joining captive insurance BDs,” Henschen said. “Even though they’re putting on the mask of independence, you find the true colors when you try to leave.”.

Henschen places advisors at firms he views as “real” independent brokerages in the channel that let advisors go without making things difficult for them. But even those firms’ recent arbitration records display instances where departing advisors say the firms associated with the greatest degree of independence infringed upon the industry channel’s cherished ideals and practices..