Financial Advisor Starting Own Company

[DrakeSRT]

Just curious how you would feel if your long-term financial advisor (Not mine a family members'), is going out on their own and starting a new company and wants you to go with them>

They are a fiduciary and Their Reason...So they can take more time off and spend with their family...

Without going into too much detail, they are currently with a large firm and have a good track record.

[Hyperchicken]

I'd think they want to

a) work less,
b) pocket more of my money

...and then I would remember that I have no financial advisor, and cheer.

[ondarvr]

I wouldn't use one, but if I did, and I trusted the person, following them wouldn't be a problem. Mainly because very few are that trustworthy to keep your best interests in mind, so if I found one I wouldn't let them get away.

[delamer]

I’d probably stick with them too.

But if they are planning in remaining a sole practitioner, I’d have a plan in the event they 1) dropped dead or 2) retired.

[stan1]

If family member likes them then seems fine. This happens all the time. The large firm won't be happy this advisor poaching their clients, but this happens often enough that its dealt with between them.

My FIL's Merrill Lynch advisor tried this, FIL called the local office manager and said what's going on here. FIL was quickly assigned to another ML advisor.

[DrakeSRT]

She has some questions for them such as:

WIFM It's great you get more time off but what's in it for me? Less % AUM?

Also has concerns about her account being safe with new firm.

[Stinky]

Just curious how you would feel if your long-term financial advisor (Not mine a family members'), is going out on their own and starting a new company and wants you to go with them>

I’d confirm first that the FA will be able to provide the same services that your family member values.

I’d also confirm that the fee level will be maintained (or maybe even reduced).

Then, if I was happy with the advisor, I’d likely follow him/her.

[Meg77]

As a former financial advisor myself, this is not alarming or unusual. When you're an employee of a firm, you often/generally earn a much smaller piece of the revenue that your clients actually generate for the firm. Of course in exchange you get back office and compliance support, marketing and advertising, and whatever research and other benefits your firm offers.

But many FAs who are established and successful eventually realize that they can make just as much money by going at it on their own - even if many of their clients don't follow them. And/or, they can escape the endless mandates from their employers to bring on NEW clients each and every year and simply focus on their existing clients and enjoy the annuity income stream from them.

In any case, my concerns would vary depending on what their new firm is going to look like and what their current portfolio looks like. If they are currently set up with a complicated portfolio of actively managed funds or stocks/ETFs, then my question would be how the new advisor is going to manage the ongoing research and due diligence needed to keep actively managing that kind of portfolio. If they are mainly in a passive portfolio that simply needs regular rebalancing and some tax loss harvesting that might be less of a concern, but one good things big firms can provide well is a lot of research and whole departments devoted to monitoring mutual fund managers and analysts to cover individual stocks etc. A solo RIA is probably going to manage their portfolios very passively - which means you shouldn't be paying active manager prices for that service.

[HomeStretch]

My concern with solo practitioners in any industry is what happens if they are unavailable when one needs an immediate answer, on vacation, ill, die, etc. The chance of failure with a single point of contact is higher. In larger firms, there are others that can take over in a pinch, if necessary. Something to consider as you weigh the pros and cons.

[cupcakeswsprinkles]

Just curious how you would feel if your long-term financial advisor (Not mine a family members'), is going out on their own and starting a new company and wants you to go with them>

They are a fiduciary and Their Reason...So they can take more time off and spend with their family...

Without going into too much detail, they are currently with a large firm and have a good track record.

I would laugh and move the money over to Vanguard.

Seriously, they actually told a client that? So unprofessional. What is the benefit to your family member? They serve the customer.

[stan1]

Their Reason...So they can take more time off and spend with their family...

Might appeal just fine to WFH generation who feel they are more productive at home, taking time off, and spending time with family.

[Billionaire]

Your family member should find out if the advisor has a non-compete agreement with the large firm. If so, it could get ugly. If they wanted to stick with the advisor, I would wait a few months to see if anything shakes out. The replacement at the large firm could suit your family members needs just as well.

[Weathering]

The financial advisor is most certainly not starting their own business. They are attempting to take their clients to a new investment platform (LPL Financial, Altruist, Advisor I/O). In return, the financial advisor will get a bonus from the new platform of 6 to 8% of the client money they bring with them. This is a typical move for a financial advisor nearing retirement - one last fleecing of their clients before they retire. Within two years, your relative will be assigned a new advisor at the new firm and asked to start a new financial plan.

It is the financial advisor version of the Boglehead thread on Brokerage Transfer Offers.

[AceSD]

I would be fine with it and happy for my advisor.

If I understand it correctly, person X is happy with their advisor who is going to work for themself rather than someone else. Other than perhaps constant availability (even then, the advisor person X likes is not always available even when working for a firm...so person X would have to roll the dice with an unknown advisor time to time if they need immediate/constant assistance) I do not know why a client would care. Succession does not seem to be an issue any time soon.

I guess if the client does not want the advisor they are happy with to do better for themselves at no cost to their clients, they should end the relationship and try their luck finding a new advisor. Maybe they will be happy with the first person they work with. Maybe they will be unhappy and wish they had just stayed with who they were happy with. Seems person X would be taking a risk without reward.

Also, the firm the advisor worked for must have had a person who started the firm. Does that give the client pause? Someone somewhere started a company...if it is a problem with the new company is it not a problem with the current one?

This "issue" does not make sense to me. Are some clients happier if their advisor does not spend time with their family?

[UpperNwGuy]

Does this mean that the brokerage will change? When my late father's advisor switched firms, my father's accounts had to move from one brokerage to another.

[delamer]

She has some questions for them such as:

WIFM It's great you get more time off but what's in it for me? Less % AUM?

Also has concerns about her account being safe with new firm.

My guess is that the advisor currently has to spend a lot of time trying to bring in new business, due to pressure from management.

So reduced hours doesn’t necessarily mean that the time spent managing/servicing your relative’s account will decline.

Although some on this forum might think that’s a good thing . . .

[cableguy]

Read Weathering's comment above....spot on

[DrakeSRT]

The financial advisor is most certainly not starting their own business. They are attempting to take their clients to a new investment platform (LPL Financial, Altruist, Advisor I/O). In return, the financial advisor will get a bonus from the new platform of 6 to 8% of the client money they bring with them. This is a typical move for a financial advisor nearing retirement - one last fleecing of their clients before they retire. Within two years, your relative will be assigned a new advisor at the new firm and asked to start a new financial plan.

It is the financial advisor version of the Boglehead thread on Brokerage Transfer Offers.

Yep, You are correct. Just confirmed.

[HomeStretch]

If your relative has a Taxable account that they are considering moving to the advisor’s new firm/platform, check whether the transfer will require any old brokerage proprietary funds to be sold. This may have a tax consequence.

[mhalley]

Not unless I get a significant discount on the aum fee. Not that I would pay one in the first place.