Six Critical Broker-Dealer Questions for Transitioning Advisors

May 26, 2017

Six Critical Broker-Dealer Questions for Transitioning Advisors
By Simon Hoyle, Director of Business Development

Broker dealer ownership, size, compliance, and technology impact our practices like never before.  Industry shifts have placed high advisor priority on stability.  Focus on these make or break components to secure the optimal experience for you and your clients.

  1. Who owns the broker dealer? This may be the single most important question you can ask in preparation for transition. The combination of industry consolidation and regulatory change launches us into uncharted but not unexpected waters.

Learn about the ownership structure. Who owns the broker dealer? A private equity firm? Representatives and management? An insurance company?  Privately held? Or a broker dealer aggregator?

Ownership structure significantly dictates the culture and path of the broker dealer.

First a short look back at how we arrived at current broker dealer models. Insurance companies bought broker dealers as a means of increasing and equally importantly diversifying business interests. Risk management indoctrination served newly baptized registered reps well in their journey to providing a base product founded on peace of mind and practicality. A trend was set in place for some, lasting as long as decades. Over time many clients’ risk management concerns were assuaged and advisor progression towards a focus on wealth management began.

Private equity is arguably one of the fastest ways to grow, add scale and shareholder value in the process, possibly second only to buyers of broker dealers. Injecting capital can add a boost to business and bottom lines of those involved and the end recipients. The inherent nature of these transactions may prompt consideration of long term consistency due to potential ownership changes.

Privately held companies seem few and far between. Notable benefits reside in this affiliation option.  Among them are “one master to serve” and business autonomy. At some point owners and eligible persons will extract their equity for personal use. We’re seeing a trend in early “S curve” activity from smaller broker dealer owners cashing out at growing rates. It’s not a question of who’s for sale, it’s a matter of when. So, what experience, vision, and retirement time frame do key stake holders have?

Although not a new concept, broker dealer aggregators will continue to gain interest. Better ticket charge pricing through volume and shared efficiency across technology and compliance platforms, for example, hold the promise of increased automation and higher advisor net revenue.  One challenge in this scenario is keeping culture and differentiators intact. Is the parent company more closely aligned with your business values and objectives or theirs?

  1. What size is right? Rules and regulations can materially clothespin lower capitalized offerings. Most of us appreciate and respect competition living in many sizes. This cherished value ultimately provides a better client experience over time.  May we keep this spirit throughout regulatory edits.Industry consolidation will reward those with economies of scale and the heart to reinvent.  Maybe ironically, many larger practices are seeking broker dealers who mirror their values of strong personal relationships and sense of family.
  1. Which technologies garner most of their time, effort, and resources? Broker dealers tend to be proud of their technology.   Ensure their offerings work for your practice. Request a demonstration; include relevant staff to view your workflow in motion. Can they make your business and team more efficient? Are their projects focused on helping you deliver a better client experience?
  1. Do I fit your compliance guidelines? New relationships can sour over a dis-connect regarding what’s okay and not okay business wise. If your business model is anything other than plain vanilla, consider requesting a conference call with a compliance member in authority. Even if your business is conservative it’s usually time well spent anyway.  Are they comfortable with everything you do today and may do tomorrow? Provide challenging scenarios you’ve experienced and ask how those would be treated.  Compliance compatibility deserves a deep dive.
  1. References.Broker dealers will gladly provide happy references.  But are those the only ones you should speak with?  Consider calling a few of the firms’ non-referenced advisors to obtain a better sample. You can easily search online for that broker dealer’s name in conjunction with “contact us” to obtain pages with broker dealer specific practices that didn’t appear on your suggested call list.   Ask why he or she joined this broker dealer? Did they keep their promises? Where does the broker dealer shine and where are they challenged? Minute for minute this may be the best time you spend in the due diligence process.
  1. Background checks include the 3 C’s- credit, criminal, and CRD. Ask your finalists how their credit check process works. Do they obtain a credit score (also known as a hard hit)?  If your credit score is attained by others your broker dealer may learn of your activity. Most advisors avoid unnecessary challenges.  You’re better protected through a credit history review initially and a more exacting review, if necessary, around affiliation day.The best advisors approach this process as one with many moving parts.  Many consider it a best practice to network with the best potential partners regularly, even more so this year.

    Please email Simon Hoyle if you have any questions at

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