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If you are a financial planner looking to swap dealer groups, don’t get caught up in the emotion of the decision. Instead, be very objective about which is the right dealer group to go to and be vigilant about doing your homework before making a decision to move.

Tim Browne is a financial planner with Financial Wisdom, which is part of the Commonwealth Bank’s dealer group. He says financial planners do change dealer groups, although they do this rarely.

“It’s a big impost on the business to make that change,” Browne says. “If you move, it’s important to make sure you are going to a place that can help you make the transition smoothly,” he adds.

Why is it so?

According to Browne, advisers decide to switch dealer groups for a number of reasons, the main ones being a perceived lack of support from the dealer group or overly onerous product restrictions which prevent them from being able to recommend investment products that are not on the dealer group’s approved product list.

“Frustrations over limitations on the scope of advice they can give is the most common reason why people change dealer groups,” he says.

However there are significant impediments to moving dealer groups, the key reason why advisers remain with their dealer group for years on end even when they are unhappy. The major barrier to moving dealer groups is restrictions on advisers taking clients with them when they move.

Different models 

There are various models investment houses use when it comes to managing the process when an adviser wants to switch dealer groups. Browne says the most common one involves an amicable split and the adviser taking his or her clients with them.

“A common departure model is for the adviser to go to the dealer group licensee to say ‘I’m out of here’ and for the licensee to say, ‘we’ve had a good relationship and I’ll sign a letter to say clients are free to go’,” he says.

Another common model involves client acceptance of the transfer of their business to another dealer group before the transition takes place. This is a more arduous process because it usually involves hundreds of clients signing off on the transfer, which is a big administrative burden on the licensee.

Browne says usually the model followed is a hybrid of the two aforementioned models.

“The outlier situation is for the licensee to say you can go, but you can’t take your clients,” he says.

As to which approach is followed, Browne says “this depends on the nature of the departure – if there is a reasonable relationship between the licensee and the adviser, the transition process should be fairly smooth.”

“If there are concerns about the quality of the advice the planner has been giving, the licensee will be more concerned for clients and will ask clients to authorise the departure,” he says.

First things first

The first step in making a move between dealer groups is to determine a business plan for your practice. This plan should outline where the business wants to go and what it wants to achieve. “Then, put the business plan to tender,” says Browne.

It’s an idea to show the plan to at least three different dealer groups before making a decision to jump ship. One of the dealer groups on this list should be the existing dealer group, to give them an opportunity to match or better an offer from a rival group. Then, it’s an idea to meet with a big institutionally-owned dealer group as well as a boutique outfit, to get the measure of the industry.

Before deciding which way to go, look at the financial statements of each dealer group (to see if they are financially sound), their human resource strategy (to see what sort of support you will receive) and their technological solution (to see how clients will be treated). Do an objective comparison of each dealer group’s offerings in these areas before taking the plunge.

Browne’s advice during this process is to take the emotion out of the situation. “It’s easy to get caught up in what’s happening, so the reference point for the adviser has to be their business plan, aspirations and cultural fit,” he says.

Most importantly, the planner should feel that the new dealer group is committed to his or her success, and that the philosophy of the new licensee ensures clients come first.

Transitioning

According to Browne, once an adviser has signed a deal to switch dealer groups, it’s a process of transitioning clients, setting up the technology to service those clients and getting started on key projects.

As to how long the transition period takes, Browne says “this depends on resources. In a well resourced practice, clients should be transferred across within two months.”

In terms of the resources needed to make the transfer, Browne says a good quality business coach and the technology and support to transfer the clients is essential.

Dollars and cents

In terms of the remuneration structure planners should be looking for when moving dealer groups, Browne says “look at the offer and the dealer group’s resources and balance these before making the switch. You’re looking for the group that can help you achieve the goals set out in the business plan fastest, with a minimum of fuss and with the best return on investment.”

Finally, before switching to a new dealer group, make sure that your own culture and work ethic fits with the new dealer group. Because no matter how great the new dealer group appears to be, unless there is a cultural fit, chances are the planner will be looking to move on again soon after signing the contract, which is detrimental to the planner’s career and the dealer group’s reputation.