There is a new reality for advisors who work for a wirehouse: An undercurrent of vulnerability.
I apologize for the bluntness. This is not meant to cause alarm but rather to bring much-needed awareness to the simple truth.
You are vulnerable.
You may not feel it yet. You may not ever feel it.
You may be confident that you run a clean business valued by your firm and protected by management. You may have a sizeable book and contribute significantly to your firm both financially and reputationally.
But ultimately, you are still vulnerable.
We are witnessing an undeniable surge in the number and frequency of forced exits from the major brokerage firms. Whether it’s an internal review, an administrative leave, or an actual termination, even the industry’s top advisors – including long-tenured folks with spotless records – are finding themselves unexpectedly in their firm’s crosshairs without ever thinking beforehand, “What if…?”
Those advisors who have been confronted with oversight challenges are asking themselves:
“Were there warning signs that I failed to see?”
“Could I have avoided the negative outcome by making a few changes, or if I anticipated there was a potential issue?”
We have written extensively about what to do when the unthinkable happens. However, being reactive once you’re forced to deal with a compliance question is the last resort.
Uncovering areas of vulnerability in your practice is critical to having agency over your professional life and ensuring the continuing good health and stability of your business. It’s important to identify these areas early and often. The goal is to expose any vulnerability long before trouble brews.
It boils down to this: Be self-aware and acknowledge the inherent vulnerabilities within the practice, even when you are not feeling vulnerable. Start by asking yourself these 10 questions—with complete honesty and objectivity.
- Is your business still a comfortable fit for your firm, both in size and nature?
- Are your clients still a comfortable fit for your firm, both in size and nature?
- Is your investment management approach still the right fit for your firm?
- Does your business include nondiscretionary assets?
- Are there tensions within the team, either with partners or with staff?
- Are you experiencing office conflict, including of a nonbusiness nature?
- Are you worried about a past mistake or error in judgment, even if inadvertent?
- Do you feel confident in your understanding of the rules as they relate to your business?
- Are there changes in leadership or firm policies that may prompt new rules or stricter levels of enforcement, apart from regulatory developments?
- Are you seeing indications of a decreasing lowest common denominator?
But sometimes, there are indications that trouble may be lurking, which creates greater urgency. Failing to acknowledge their significance can have devastating consequences.
Signs of impending trouble that you shouldn’t ignore
Management, legal, or compliance has asked a question. Firms don’t make casual inquiries. Is there a bigger concern? Is there an underlying issue? Have you been worried about something?
A client has verbally raised a question. While it may not indicate a written complaint is forthcoming (the consequences of which are well-known to every advisor), a verbal inquiry is still a warning sign.
“But the manager knew I was doing this, and I had her blessing!” How certain are you that management is on the same page? What if their position changes?
Your gut and experience tell you something feels different or has changed. Long-tenured advisors often develop a sixth sense that can alert them to concerns before they become problems.
One of the biggest risks top advisors face is that while pursuing excellence, they often need to rely on exceptions and don’t see the inherent vulnerability in standing out from the pack.
Operating under exceptions
The most successful advisors and teams often rely on exceptions to established firm policies and procedures to meet the changing demands of their sophisticated practices. These exceptions are often granted verbally by the local manager—and advisors rely on them, assuming they will remain in place in perpetuity.
A change in management, firm tolerance, or appetite for certain behavior can put even longstanding exceptions under scrutiny and consequently at risk. Large firms are increasingly risk-averse, taking a more homogenous approach with their advisor community and, therefore, less tolerant of exceptions.
Consider that advisors and firms are readjusting after nearly four years in the pandemic world, which opened the door to a host of new advisor behaviors, including how they communicate with clients and where they work. Oversight practices and policies are playing catch-up to keep pace with how quickly wealth management has evolved in just these past four years.
The largest producers were historically insulated from the scrutiny that others experienced. These top performers might assume that if an issue surfaced, they would enjoy leniency given the significance of their business—at worst, a slap on the wrist and then back to business. They didn’t necessarily believe they were above the law, but instead that the rules would be interpreted or enforced differently for them.
Today, corner office advisors can no longer rely on their special status, as evidenced by terminations over the past few years, leaving some feeling vulnerable and unprepared for the first time in their careers.
Prudence, not paranoia
Vulnerability can be a catalyst for change. Many will see two options: live with the vulnerability or find ways to minimize it by modifying how they operate or by changing their firm or model.
This is not a call to panic but rather a call for honest self-awareness. Advisors who end up in conflict with their firm often admit, upon reflection, that there were signs of trouble that they ignored or misread, sometimes due to misplaced trust or good intentions. The vast majority of advisors will never face potentially career-ending events. But staying vigilant about how your business is viewed through the lens of your firm’s changing oversight culture and regulatory experience is essential to safeguarding your greatest asset.
As seen on AdvisorHub.com…
Download: Vulnerability & Termination: An Advisor’s Survival Guide
