Crossing over

However, switching firms is a decision that must not be taken lightly. The change affects not only your day-to-day routine, but also your team, your clients and the long-term success of your practice.

“It’s quite literally life-altering and career-defining to change where you hang your hat,” says John DeGoey, vice president and portfolio manager with Hamilton, Ont.-based Burgeonvest-Bick Securities Ltd. (BBSL), which is being acquired by Montreal-based Industrial Alliance Securities Inc. under an agreement announced in November 2015.

Switching firms can be disruptive to your practice. You’re likely to lose at least some of your clients in the transition process and, depending on the terms of your contract with the firm you’re leaving, you could be restricted from even trying to invite your clients to jump ship with you. The switching process requires a careful approach to both communication and compliance.

– Making the decision

Joanne Ferguson, president of Advisor Pathways Inc. in Toronto, says you should consider carefully all of the potential repercussions of such a change. Conduct extensive research on any firm you’re considering joining. “You need a good reason to switch,” she says. “If you think that one place is really all that much better, you have to be certain that it’s aligned with your values and what you need for your clients.”

If you don’t have a solid reason for leaving your current firm, persuading your clients to make the switch with you will be considerably more difficult, DeGoey says: “Clients are pretty good at sniffing out whether a move was done in their interest or in the advisor’s interest.”

The most important factor when selecting a new firm, DeGoey says, should be whether the firm’s culture is aligned with your values. DeGoey switched to BBSL from Toronto-based Assante Capital Management Ltd. in 2005, when he realized that there were irreconcilable inconsistencies between his personal brand and that of Assante.

“I had to go to a firm that I thought was more compatible with my world view,” he says. “Culture is a really, really important consideration in where you choose to work and how you position yourself to your clients.”

DeGoey spoke to approximately a dozen firms before deciding that BBSL was the firm with a culture best suited to his practice. All of that research paid off. He ultimately was successful in bringing 97% of his clients to the new firm, and he feels that the change has been positive for both himself and his clients.

The timing of such a major change is important as well. Reflect on how closely you have been in contact with your clients in recent months, and consider whether clients would view your relationship as being strong enough to justify uprooting their accounts and completing all of the paperwork necessary to join you at the new firm, says Rosemary Smyth, business coach and founder of Rosemary Smyth and Associates in Victoria.

The state of financial markets also should be a consideration. If a recent market downturn has punished your clients’ portfolios, your exit from your current firm might give them an excuse to shop around rather than maintaining their relationship with you.

“You want to be sure that [the timing is] right and you have built strong relationships with your clients,” Smyth says. “If the market is down, that might not be the best time to move, since clients will really be reassessing your relationship.”

– Know your contract

Before you begin searching for a new home for your book of business, determine whether you face any contractual restrictions against joining a competing organization and taking your clients with you. Under securities laws, client accounts belong to the firm at which the accounts are held – not to the individual advisor. So, you may not have as much freedom as you would like to uproot your clients and bring them elsewhere.

“Even though it’s a relationship that you have fostered with your client, fundamentally, the legal contract is between the firm and the client,” says Julie Mansi, partner in the securities and capital markets group at Borden Ladner Gervais LLP in Toronto.

The extent of your ability to contact your clients and persuade them to join you at a different firm will depend on the terms of the contract you signed when you joined your current firm. For example, some contracts have provisions indicating that the advisor is not allowed to compete with the firm or solicit clients for a certain number of months after leaving that firm.

“You don’t automatically have a right to contact clients,” says Jonathan Heymann, president of Wychcrest Compliance Services Inc. in Toronto, a consulting firm that specializes in securities compliance and registration. “It very much depends on what agreement you reached with the sponsoring firm when you first joined.”

Even bringing your clients’ contact information from one firm to another could be a violation of your contract, Mansi says, because that could be proprietary information of the original firm.

Firms typically don’t make things difficult for advisors wanting to leave when it’s clear that they’re unhappy at the organization, according to Mansi. However, you should be prepared for the possibility that your firm will not respond favourably to the news of your pending departure – particularly if you’re making a move in breach of your contract.

“I don’t think dealers are interested in keeping people at their shop who don’t want to be there,” Mansi says. “But I also don’t think [firms] will happily roll over to someone who abuses the system.”

Mansi notes that violating your contract can lead to legal action – not only against you, but also against the new firm you join. “There is civil litigation risk for the new employer,” she says, “if it has knowingly facilitated a breach of your employment contract.”

In some cases, when a firm learns that an advisor is switching to another firm, the first firm will arrange for its other reps to begin contacting the departing rep’s clients immediately to persuade them to stay.

In other cases, however, the departure can be amicable. In DeGoey’s case, for example, he was not restricted from contacting his clients, and his original firm went a step further by providing assurance that it would not try to solicit his clients, which made the transition far easier.

“If you don’t get that assurance, then every hour that passes is an hour when the firm that you’re leaving could pilfer your clients to stay with the firm,” DeGoey says. (Advisors can negotiate this type of clause with some firms when they first join.)

The best way to ensure a transition free of legal and compliance conflicts is to stay within the terms of your contract and be respectful when notifying your firm of your decision to leave.

To stay onside with securities regulations, you must avoid contacting clients when you’re between firms. During the period in which the regulators are transferring your licence from one firm to another – a process that usually takes only a couple of days – you cannot communicate legally with clients. “If there is a lag when your registration is transferred from one firm to the other,” Heymann says, “you are not registered. You would be breaching securities legislation if you started talking to clients.”

– Communicating the move

Once you have switched over – and assuming you’re not contractually restricted from contacting clients – start getting in touch with your clients as quickly as possible to notify them of the move.

“You’re playing ‘beat the clock’,” says DeGoey. “Time really is of the essence at the moment of the move.”

He recommends drafting a letter to clients ahead of time, outlining your decision to change firms. Have the letter approved by your new firm’s compliance department, printed and signed well in advance, so that you can mail it out to your client roster as soon as your new licence is processed. Then, be prepared for calls from clients.

“You need to be as accessible as possible,” DeGoey says. “It’s imperative that you [offer] a phone number and email address where clients can reach you.”

Once the letter has gone out, consider following up with clients via phone.

“Discuss the client’s concerns first,” Smyth says. “How is this move affecting them?” For example, clients typically will wonder what fees and costs will be involved in changing firms, and what benefits they’ll receive in return. In addition, they probably will stop to consider whether they want to continue working with you.

Make sure you’re familiar with any potential fees that your clients could face in the transition process, so that you’re prepared to answer questions. In addition, explain what steps you and your team can take to make the transition smooth and easy.

Once you’ve addressed all of your clients’ concerns, explain how the shift will benefit them. Consider which factors are most important to each client, Smyth says, highlighting the benefits that are most relevant. For example, if a client has complex tax-planning needs, emphasize the tax support resources that are available at the new firm.

Encourage clients to complete all of the necessary paperwork to transfer their accounts as soon as possible. Clients who don’t take action when the news is still fresh in their minds may never get around to making the switch. And the longer they drag their feet, the greater the disruption to your compensation.

“If your clients don’t move over quickly,” DeGoey says, “then your revenue stream dries up until they move over.”

© 2016 Investment Executive. All rights reserved.