Whether you’re a newly minted financial advisor or an experienced one striking out on your own, the broker-dealer you elect to work with will significantly impact the future of your business.
A broker-dealer will take care of buying and selling securities, regulatory compliance, technology, and other needs you’re not focused on as a financial advisor, so picking the right one is critical to your success.
Getting started with the right partner won’t happen overnight, but here are six things you can do now to help ensure a smooth transition and good business outcome later.
1. Take Stock of Your Business Needs
Take some time to decide what you need from a broker-dealer. What kind of services and products do you require, and what services and products can the broker-dealer provide? You should also consider the technology platform you need a broker-dealer to bring and front- and back-office support services.
Additionally, you’ll want to think about the culture of your business. Working for yourself gives you independence — working with a partner will change that. Consequently, you should assess whether the broker-dealer you’re considering is a good fit with you, your office, or your team.
2. Research Potential Broker-Dealer Partners
While finding someone who shares your business values and vision is essential, ensuring that you don’t run into any legal issues or damage your reputation is even more critical.
Once you have a list of potential broker-dealer partners, thoroughly research their backgrounds, seeking information about their reputations, experience, and services. Talk to other financial advisors and attorneys, including advisors at the firm you’re considering.
The professionals at Concorde Investment Services suggest four key questions for future broker-dealers about regulatory compliance, technology, products and investments, and services.
3. Evaluate Costs, Compensation, and Pay-Out Ratios
You know that bringing on a broker-dealer will help your business grow by giving you access to technology, services, and products you don’t have. But that could also mean you must share more of your company’s revenue.
To determine what to put in on the front end and whether what you get on the back end works for you, compare costs among broker-dealers and have a conversation with each about compensation and payout ratios.
Very little is standard about payouts, so you’ll need to know whether a broker-dealer will also require a share of your revenue as compensation. While you’re at it, make it a point to resolve any credit issues as firms closely scrutinize the advisors’ histories. Be prepared to explain any marks on your record.
4. Consider the Impact on Your Clients
One of the big reasons to take on a broker-dealer is to help expand your client base. While it’s easy to focus on the growth that will take place in your business, you also want to think about your existing clients.
Consider whether the broker-dealer can offer the same or similar products your clients have now, and find out whether your clients have an option on whether they want to work with the broker-dealer’s firm.
The goal is to grow your business, but you don’t want clients to leave. It will, therefore, be essential to know whether a particular broker-dealer aligns with your investing philosophy.
5. Make Sure the Broker-Dealer Is Compliant
Talking to your potential broker-dealer about compliance is necessary to ensure your business’s credibility and success and ensure you don’t jeopardize any of your licenses as a financial advisor.
Make sure the broker-dealer discloses any current or previous compliance issues, as awkward as it may be to ask. It’s also a good idea to find out whether a given broker-dealer is registered with the U.S. Securities and Exchange Commission (SEC) and look them up with the Financial Industry Regulatory Authority, a not-for-profit organization authorized by the SEC to regulate stockbrokers and broker-dealers.
Preparing for the Change
One of the most overlooked steps for financial advisors taking on broker-dealers is making sure they’re ready for the partnership. And don’t forget that while you’re evaluating broker-dealers, those professionals and the firms they work for will evaluate you, too. Take inventory of your situation and be open and honest with prospective broker-dealers, just as you expect them to be with you.