Your advisor is moving. Should you, too?

October 17, 2012 - John Osbon (3 mins to read)

It could happen to you.  Or maybe it already has. Your advisor is moving to a different employer. Change happens. Frequently. Every year 12-13% of financial advisors change employers or their firms are sold or merged. That’s a lot of motion. If your advisor moves, should you follow? What do you need to know before you make that decision?

In whose best interest?

According to a recent Wall Street Journal article, about 1 in 8 financial advisors moves each year.  In my experience, advisors often celebrate these moves with letters to clients that cite “better products” or “better research” as the motivation behind the move. This may be true in some cases, but I think it is rarely the whole truth.

I believe most moves are motivated by the desire to increase earnings – for the advisor, not their clients. Big Wall Street firms often entice successful brokers to move by making large payments to capture his/her client revenue stream.  As a manager on Wall Street I was on the delivering and receiving end of this war of broker musical chairs, and I fail to see how it helped clients at all.

Now clearly there’s nothing wrong in changing jobs to make more money. It happens in every industry. But when an advisor wants you to follow, it’s worth a closer look at the possible outcomes for you:

Portfolio changes – You may not be required to liquidate your portfolio if you move it to a new firm, but your advisor may be generously compensated to sell the new firm’s proprietary products. These products may or may not be a good fit for you. Before you follow your advisor, get the scoop on what it means for your portfolio right now and the menu of investments you may be choosing from in the future.

Fee changes – When you’re discussing that menu of investments available at the new firm, be sure to check the prices. Fee structures can vary considerably from one firm to the next. What will you pay in commissions on trades? Do funds carry up-front sales loads? What are the expense ratios of the core funds your advisor is motivated to include in your portfolio? Actively managed proprietary products typically carry fees that are significantly higher than index-based investments like those we often discuss here, and the cost difference can have a huge impact on long term performance.

Different business models – One difference in fee structure could work to your advantage. If your advisor is moving from a broker/dealer to a fiduciary Registered Investment Advisor (RIA) firm, you may have far greater freedom to choose low expense non-proprietary investments, such as index ETFs. RIAs are typically “fee-only,” meaning that you pay only an annual fee based on the balance of your portfolio. This motivates the advisor to pursue your interests – when your wealth goes up, so does his/her income. Osbon Capital operates on the fee-only model; after years on Wall Street I find no comparison in terms of serving client interests. Receiving no compensation from fund providers or any other source, I can stay fully focused on helping clients succeed.

Follow the money

In general, my best advice for anyone facing an advisor move is to “follow the money.” When you understand compensation, you understand motivations. When you understand motivations you can better predict future behaviors. If lured to follow an advisor, I suggest asking many questions (here are a few). And in the end, the most important question to ask is simply this: “How does this change benefit me?”



Weekly Insights

delivered to your inbox


This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”

“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.

Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.

Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.

This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.

While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.

Adviser does not endorse the statements, services or performance of any third-party vendor.

Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.

Any IPO alerts are purely informational and should not be construed as recommendations to invest.

Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.

Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.

Weekly Articles by Osbon Capital Management: