Top 10 Tips to a Bulletproof Transition

As a Financial Advisor and a steward of your firm’s future, you may be contemplating changing firms and moving your business because it’s in the best interest of all relevant stakeholders. And while porting a business from firm to firm has become more efficient as the ecosystem has evolved to be more attuned to advisors in motion, it still requires significant planning, organization and effort. As important, it’s not a flip-the-switch kind of process so you must be prepared to exercise patience while in flux.

Don’t let this interruption deter you. A thoughtful, well-calculated transition will likely yield benefits that endure for years!

Having facilitated numerous transitions, here are 10 Tips to procuring the highest level of success with the greatest amount of manageability, efficiency and dare I say, sanity:

To keep your attention, we’ll start with the first 5 Tips and post Tips 6-10 next week!

1. Engage Legal / Compliance FIRST

Hire a professional early in the investigative stage and have all contracts reviewed. This includes but is not limited to: Employment or Independent Contractor Agreement; Non-Compete, Non-Solicit, Compensation, Partnership, and Client Investment Advisory agreements; Equity and Incentive Plans and your firm’s Privacy Policy. It’s imperative you understand terms, conditions, risks, potential consequences associated with those risks and how to best manage the overall process. The discovery becomes the blueprint for your eventual plan of execution. You won’t be sorry.

2. Analyze Your Business

Know your key business metrics: AUM, gross revenue, expenses, income, profitability, timing of payments, etc. A transition can potentially affect any of those components and you need to understand the ramifications.

Analyze your Client Base: Identify the number of Households and Accounts, AUM and Revenue per Client, average account size. Review each relationship and assign a probability of them joining you at your new firm. As important, earmark clients you don’t want to follow you! Doing the upfront work provides an informed estimate of what your business will look like in the neat-term future. Your new contra firm and/or custodian will likely require this information as well. *Do NOT share any non-public client information prematurely, unnecessarily or without the right to do so.

Evaluate Asset Mix, Trading & Investment Vehicles: Be able to describe the breakdown of your asset base across the major asset classes – equities, fixed income, cash, alternatives and type of investment vehicles. Know your historical trading data and highlight if your next 12 months could be significantly different and why. Run a comprehensive list of securities held in your clients’ portfolios to determine in advance if the same investments are available at the new contra firm. Be certain to understand availability, fees, minimums, share class restrictions, etc., of like vehicles at the contra firm. This especially applies to mutual funds, separately managed accounts and alternative investments.

Compare Economics: This applies to Yours and the Clients’. For advisor economics, be sure to assess Gross Revenues, Expenses, Net revenues, Operating Margin, Bonus (if applicable), Deferred Comp, Benefits, Loans, Growth potential, intangible value for built-in services. Also, in most cases, you should assume a lag in revenues due to the transfer of clients and assets, usually for one to two quarters. Finally, evaluate Client economics, including client fees, trading costs, account level fees, possible close-out fees, and pricing for comparable products and services.

3. Compare Product & Services

Beyond investments, identify other products & services that you may depend upon and/or your clients expect. These may include banking and lending, bill pay services, trust services, margin, specific technology or trading capabilities, marketing and practice management consulting services, etc. You’ll need to know that a similar if not broader menu of services is waiting for you at the contra firm.

4. Assemble a Transition Team

Assign an internal team lead. If you’re solo, well then you’re it. If part of a larger unit where you are a principal, I suggest designating someone else as Lead. You’ll have plenty of other primary tasks to handle. Your Transition Team lead should identify a point person at the contra firm as well. They can assemble other role players as needed. They should also deliver progress reports, seek decisions from you, and solicit input as appropriate. Ultimately, you are accountable so don’t become too far removed from the process. Regular communication will minimize surprises and maximize your contribution to the process.

5. Develop a Coordinated Transition Plan

To prioritize objectives and action items, as well as ensure synchronization, develop a plan that represents all key stakeholders. Include your transition team, the new contra firm and/or custodian, and any associated consultants, vendors, etc. Solicit deliverables and timetables from each party; determine points of accountability, roles, responsibilities and tasks of everyone involved; be sure to include timelines and success metrics!

An essential key to successfully executing on a transition is regularly scheduled communication. Everything suggested above should be reported in a consistent, transparent, accessible manner. I recommend maintaining reports that are posted on a shared but protected drive (Google Drive or Dropbox for example) on a regular basis. To supplement, schedule standing calls/meetings to keep the process moving smoothly. Plan each meeting and distribute agenda items with ample notice to attendees. Maximize your time.