For a financial advisor, the closest thing to receiving a raise is being given a reassigned account. One advisor leaves to join another firm. Another advisor is given the account. Both have the same mission. Get that client under their production number. As many advisors discover, those genial friends you laugh with over lunch, suddenly become piranhas in pinstripes.
Years ago, the reassignment process was largely unregulated. This led to major abuses. If an office was run by a producing manager, they might cherry pick the best accounts for themselves. Choice accounts might go to advisors within the inner circle in the office. Certainly, production played a part.
Today, the process is more structured. At some firms it might even be automated, removing human intervention entirely. However, two factors probably remain constant:
- Firms try to support advisors who are doing well;
- Managers want advisors who will “jump right on it”, immediately contacting the client and providing seamless service.
The Right Way to Do It
Advisors often have the opportunity to opt out of the reassignment process. Their business might concentrate on a defined niche. They are transitioning into retirement. They do business a certain way.
However, many advisors consider reassigned accounts manna from heaven. Recently, a regional training officer recalled a conversation he had with an advisor: When he asked: “What’s your plan to grow your business and add new accounts?” the advisor replied “Attrition.”
The vast majority of financial advisors are ethical. When given a reassigned account they will get in touch with the client immediately. They will let them know their previous advisor left the firm. Often they will use one of three approaches:
- It’s Your Choice – “I realize your previous advisor would like you to follow over to their new firm. You may choose to do that. However, I would like to have the opportunity to meet, learn about you and explain how I work with clients. I hope you will choose to remain with Monolith Securities.”
- Second Opinion – “I realize your previous advisor would like you to follow over to their new firm. This might be an ideal opportunity to get a second opinion about your investments. Having a fresh set of eyes look things over is prudent. I would be glad to do that.”
- Teaming – Years ago, clients had a 1:1 relationship with an advisor. Gradually, the industry shifted to a team approach, theoretically giving the lead advisor more time to prospect. The expansion of the recurring revenue model from fee based accounts meant advisors were spending more time servicing clients, which is also a good thing. The team model changed the dynamic. Now the competitor firm needed to either hire away the entire team or risk the remaining team members calling clients, all having a relationship with the team members, making the case for them to stay.
Piranhas in Pinstripes – The Less Ethical Ways
Now we get into the less ethical approaches:
- Your advisor left. I’m not allowed to say any more – On TV dramas, innocent people have suspicion cast on them when the police say: “We don’t comment on existing investigations.” The financial services equivalent is: “Your advisor left. I can’t say why. Sometimes it’s for legal reasons.” The new advisor is implying there was a compliance problem, which clients might interpret as “Not acting in the best interests of their client.” The cloud of suspicion darkens.
- Delaying transfers – The client fills out account transfer papers or an electronic transfer is submitted. (Having the client’s actual signature on documents is usually critical.) The firm slows down the processing of paperwork, perhaps misplacing the documents. This allows the new advisor more time to persuade the client to stay.
- I can’t believe he overcharged you! – The new advisor leads with a heavily discounted commission or fee structure. They imply this is the same price all their other clients pay, not the posted rate. They imply the departing advisor deliberately did not grant this same discount, thereby overcharging them. The advisor creates doubt the previous advisor was acting in their client’s best interests.
- Your allocation was too risky – They look at the client’s holdings with the benefit of hindsight. The strategy is especially effective in a declining stock market. They tout the benefits of a larger fixed income component after the fact. This implies the advisor didn’t exercise good judgment.
- They can beat the indexes – It’s extremely difficult given performance needs to cover management fees and trading costs. The client might have received respectable returns, but not index beating ones. The client is buying into the hope that this new advisor can deliver on their promises.
- Tax Efficiency – Some securities can’t transfer, especially if the new firm doesn’t have a selling agreement with certain mutual funds. (Years ago, this was a common problem with annuities and certain limited partnerships. In those cases, the client left those assets as a rump account at the previous firm.) The new advisor makes the case selling certain assets creates a tax event that could be avoided if the account stays in place.
Clients can always say: “It’s my money” and choose where they want to do business. However, clients often place a high degree of loyalty in the firm, especially if it’s a major name. They may want to weigh the pros and cons of moving. Perhaps they consult with their accountant. This is an area where the accountant’s respect for the financial advisor can be a major benefit. As the client contemplates, the piranhas keep pursuing. That’s where the problems start.
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