By Wendy Leung
Having an “escape plan” will prevent you from making rash decisions and being swept away by the shifting tides
It’s interesting how some of the most basic principles of business planning often end up at the bottom of so many advisors’ lists. No doubt, the hectic day-to-day schedule of working on “Plan A” can make it difficult to carve out the time to even consider an alternate plan for the future—that is, a “Plan B”.
But having a “Plan B” is critical for advisors—particularly since the industry seems to be in a constant state of change lately.
For instance, two years ago, who would have predicted UBS and Morgan’s exit from the Broker Protocol? Or the hyper-vigilant culture that has developed over recent years? Or the decline in wirehouse recruiting to the lowest level in a decade supplanted by a surge in movement among billion-dollar teams to boutiques and independence?
With change this substantial, it is important for advisors to get familiar with a greatly evolved industry landscape and understand the options available for their business should the need for change arise. That is, knowing what happens next if Plan A no longer serves you or your clients best, and ensuring you have a Plan B you can put in action.
It seems to be a fairly simple concept, yet still many advisors find themselves unprepared. So, what’s preventing advisors from taking positive action to understand their options?
Here are the top 9 things that stop advisors from creating a Plan B—and why you should not let any of them get in your way.
1) Too busy: Successful advisors who are running on all cylinders often find it difficult to take time away from working “in” the business, to instead work “on” the business. Yet, if the frustration and pain level is high enough and an advisor is concerned that the underlying issues could start to impact clients, then carving out time to perform due diligence is an investment in your own future security and success. Also, proactive due diligence ensures that decisions will be made from a position of strength rather than reactively in fire drill mode.
2) Fear of being found out: Understandably, advisors worry that if they begin meeting with other firms their current employer will find out. Although it is a reasonable concern, advisors should know that managers are committed to building trust and maintaining complete confidentiality, recognizing these are table stakes in the recruiting process. That said, where we have seen missteps happen is when advisors take too many team members or friends into their confidence. Our recommendation to maintain the highest level of confidentiality is to share as little as possible with as few people as possible: The less who know about your exploration, the better!
3) Concern about wasting time: Although time consuming, due diligence is never a waste of time and leaves an advisor better informed about the industry landscape and specific options for the business. The net result will either be a recommitment to the current firm or the identification of a solution that truly moves the needle to benefit the business and clients— and either outcome will be reenergizing. In order to ensure that due diligence is done as efficiently as possible, it is essential to first think through your goals and must haves. This will clarify what is most important and ensure that you are considering the right options. (Read: Beginning with the end in mind)
4) Worry that once engaged, there will be a barrage of recruiters and managers: It is true that overenthusiastic recruiters and managers sometimes don’t know when to take no for an answer. This underscores the need to choose your partners wisely. A good recruiter works in lockstep with a candidate, managing the due diligence process and the expectations of the firms, and acting as the go-between, gathering critical information and negotiating elements of the deal.
5) Stuck in a firm’s retiring advisor program: Since wirehouse retiring advisor programs contain restrictive covenants – including a non-solicitation provision for the receiving party and in some cases a non-compete for the retiring advisor – that can make a move complicated. As such, it is important to have an attorney who specializes in financial advisor transitions review the agreement and provide guidance. Sometimes the way out is a straightforward financial buyout, while in other cases it may not be that simple.
6) Too much unvested deferred: Although the unvested portion of deferred compensation is forfeited when an advisor moves, this must be weighed against the gains. A move to a wirehouse, regional or boutique can include a strong transition deal, and in some cases, additional monies to reimburse for some of the unvested deferred that is left behind. In the independent space, advisors should consider the total economic picture, including up-front money, increased take-home as well as the creation of enterprise value. In addition, it is important to factor in the non-economic benefits of the move.
7) Concerns about portability: Taking a hard look at the business and specifically assessing 1) clients that may not move (i.e., inherited or weak relationships) and 2) products that are sticky to the firm is an important exercise. Reviewing any “sticky products” with the new firm you are vetting, in order to understand if and how these products can be moved, replicated or substituted will help to determine the overall portability of the book.
8) Convinced that all firms are the same: Instead of performing due diligence, some advisors rely on word of mouth from friends, wholesalers or other associates. This can often give an advisor the false sense that there is nothing better out there. Challenging these assumptions and directly engaging in due diligence, to consider a wide set of options beyond just the traditional firms, will allow an advisor to determine, for himself, if the grass could be greener elsewhere.
9) Not that unhappy or concerned: For some advisors, when they truly assess their frustrations, they recognize that most are minor annoyances and are not getting in the way of serving clients and growing the business. These advisors on par continue to feel well compensated and well served and despite the imperfections believe that their firm is more than good enough. In this case it is best to recognize and accept that there is no perfection and that staying the course for the time being makes sense. This allows an advisor to recommit to the firm, accept the imperfections and move forward.
Investing the time to formulate a Plan B is valuable not only in that it provides an “escape hatch” should you need one, but also because the process keeps an advisor up-to-date and informed on an ever-evolving industry landscape. Given how quickly the business is changing, this is even more important than ever before and allows an advisor to strategically plan for the future rather than be swept away by the shifting tides.