Who are the Best Broker-Dealers?
It’s a question that many financial advisors will be asking themselves at one point or another in their careers. Based on recent news, it might be something you’ll be asking yourself soon with Department of Labor rulings, FINRA compensation disclosures, and a potential swarm of broker-dealer mergers and acquisitions on the horizon. However, there are a couple more significant questions to ask yourself first.
Who are the Best Broker-Dealers Based on My Business Mix?
Many advisors focus on payouts and upfront money as a priority when adding broker-dealers to their shortlists. While I agree that compensation is vital, it could be more critical than the success of finding the right firm for you. Many broker-dealers are willing to pay a substantial transition bonus to join them. However, asking why they would spend so much to attract you would be best.
Let me put it this way for you. A transition bonus is more like an advance of your commissions, and you will pay taxes on it, and it’s a reflection of how much this firm will be profiting from your affiliation in the years to come.
Broker-dealers need to recoup bonus money from you as soon as possible. Most of them need to break even on the money they provided you within three years of you switching over. They can make more money from your fee-based accounts, ticket charges, monthly fees, etc. The more upfront money they’ll throw your way. After those few years, it’s all profit for the broker-dealer, and if you choose one that provides you cash over your actual needs, I guarantee you’ll be making another broker-dealer change sooner than later.
The more money a B/D offers you, the more expensive that broker-dealer will be for you, your business, and your clients. More upfront usually means higher costs and lower payouts, ultimately decreasing revenue. Don’t get me wrong: broker-dealers need to make money to stay in business, and many provide a needed service to the industry, but there’s a happy medium to achieve.
You are better off negotiating administrative fees, ticket charges, and increasing payouts than trying to improve your upfront “bonus.”
And the second question you should ask yourself is,
Why am I looking for a broker-dealer?
This question is valid for many advisors, and for others, not so much. You may have received inside information that your broker-dealer isn’t going to survive due to arbitration, technology, and compliance cost, amongst many other things. That makes total sense, and now you know you have to make a move.
For others, you need to fit in as a broker-dealer culturally. You may be one of the only few advisors with a fee-based only approach while everyone else is selling life insurance or vice versa. Many variable annuity and mutual fund producers are being pushed out of broker-dealers’ hunger for profitability in fee-based models.
Whatever the reason and before you Google, “Who are the best broker/dealers for my business?”, You need to self-evaluate your business. It would be best if you profiled yourself, your business mix, assets, and business continuity like a client in your office. Dive deep into your situation and investigate what deficiencies you want to fill by making a move and what other areas you might be willing to sacrifice.
The perfect broker-dealer does not exist. Where one broker-dealer can satisfy your biggest complaint, switching to another firm can create a vacuum of other issues you won’t appreciate.
The bottom line is that you need to know what questions to ask yourself and what questions to ask prospective broker-dealers before jumping on the phone with 5-10 firms who might end up replicas of your current B/D or just a box of more issues.
When a client needs direction on investing, who do they call? I hope you are correct. You’ve spent countless hours, years, and even decades researching, learning, and supporting your knowledge of the market. You do that because you want to provide your clients with the best strategies, investments, and returns on their money.
We are no different at RepRecruit, LLC, and we have the same goal as you. To provide you, our client, with the best possible broker-dealer choice. We have researched and vetted every quality broker-dealer in the business. We take the time to help you evaluate your situation, business mix and needs to match you up with the best possible partner in the industry. We aim to help you find your next broker-dealer and make it the last move you ever have to make.