Your advisor is moving. Should you, too?

Written by John Osbon on October 17, 2012

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?”


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