Author: michaelkingdev

Considerations of Buying a Book of Business

As an increasing number of financial advisors are getting ready to retire, it may be tempting to purchase a new book of business. After all, it’s a shortcut to rapid growth and success for your practice, right? Not so fast. There are several important considerations to keep in mind as you evaluate your options.

Understand exactly what you’re buying.

If you’re employed by a firm, and you’re considering buying a book from another broker or financial advisor who is employed at the same firm, you may want to negotiate a three- to five-year buyout. This agreement will be between you, the selling advisor and your firm. You will likely need to work with the local office, the manager and the advisor to establish a price and the specific terms of the sale. Make sure to get everything in writing, and read through all documents carefully before signing to be sure you know what you’re getting into.

If you’re an independent advisor hoping to purchase another advisor’s book of business, the first step is to determine what’s actually for sale. Are you really “buying” a book or just “renting” it? I’ve encountered situations where the selling advisor has an agreement with a dealer, and the dealer technically owns the business. In this case, the dealer arranges for the clients to be transferred to the purchasing advisor but the dealer, not the purchasing advisor, continues to own the book. The purchasing advisor pays the dealer based on an estimated cash flow.

In essence, this is similar to renting the book of business, rather than owning it outright because if you, as the purchasing advisor, decide to leave the dealer, you leave the book behind. In this type of arrangement, the dealer will probably also require a non-solicitation agreement, which would prohibit you from solicitating the book’s clients.

This is probably not an ideal situation for acquiring new clients, so be sure you know what you’re getting into before you enter into an agreement.

Have a transition plan in place.

Before you make the leap into purchasing a book, it’s wise to have a client transition plan in place. You’ll want to agree upon a transfer timeline with the seller to help ensure you’re on the same page regarding the transition. The first six to nine months are critical in executing a seamless transition and ensuring client retention, so focus on reaching out to all new clients in order to begin the relationship-building process.

You may want to invite key clients to meet with you and the selling advisor prior to the transition. The selling advisor can introduce you, explain why you’re the best choice as a successor, and help you address any client concerns.

Understand that the new book probably won’t pay off right away.

It may be a while before the new business pays off. And, purchasing a new book isn’t going to save your practice if it’s struggling. In fact, this type of transaction is more likely to put a strain on your current business because you will need to spend significant time and effort transitioning your new clients and building new relationships. This takes time away from your existing clients. Plus, depending on how you funded the purchase, you may be spending the first few years paying for your new book before you realize any profits.

Don’t purchase a book in an effort to pursue a new niche market.

Taking time to ensure the new book of business is compatible with your approach can help ease the transition and get you to a point of profitability sooner. Don’t purchase a book in an effort to pursue a new niche market, as this will only take focus away from your current clients and put a strain on your practice as you struggle to learn about a new client demographic.

Clients are smart. If you’re not well versed in their needs and specific challenges, your new clients will likely figure this out pretty quickly following the transition and may decide to move to a new advisor better suited to help them. Your new clients should complement your existing client base, not take your practice in a completely different direction.

Consult with a professional and your firm.

There are all kinds of potential challenges and pitfalls that come with purchasing a new book of business, but a professional can help ensure a successful purchase that is in line with your overall goals, current client base and vision for the future. An experienced consultant can help:

• Conduct due diligence and identify a good fit for you.
• Determine an appropriate purchase amount and help ensure you’re not paying more than what the business is worth.
• Review the contract to help ensure it’s in your best interest.
• Create a transition plan.
• Review the book of business to help determine its quality and whether it is compatible with your current book.

If you are an employee of a firm, it’s important to communicate your goals and with your firm and identify a solution that makes sense for you, the selling advisor and your employer.

At Michael King Associates, we have decades of experience helping advisors navigate the various challenges of purchasing a new book of business. Before you sign on the dotted line, contact us for guidance. We can help you evaluate all your options and maximize your deal.

For more information about how we can help you evaluate your options for purchasing a new book, please contact me directly at michael@michaelking.com, call the office at 212-687-5490 or call or text me on my cell at 917-747-4805. Remember, whatever we discuss is TOTALLY CONFIDENTIAL. Our firm has been around for a long time because we keep our word. At Michael King Associates, we specialize in helping advisors find their ideal place and achieve their best career path. We are your go-to “MATCHMAKERS!”

Tips to Help with Timing and Preparation

The thought of moving to a new firm can be overwhelming, if not downright terrifying. You may wonder if you’re making the best decisions to maximize your transition. A little advanced planning can help you time the move and prepare for a smooth transition.

Timing Your Transition

Advisors often ask me, “When’s the best time to make a move?” and “Is it ever too late?” Both are great questions that should be taken into consideration before transitioning to a new firm.

Most advisor contracts run from eight to 10 years, and it’s typically not wise to make a move until you are done, or almost done, with your contract. If you leave too early in the life of your contract, you may need to repay some money to your current firm.

Once you have completed, or are close to completing, your contract, it’s never too late to change firms. You can move at any point in your career. Many financial advisors nearing retirement choose to make their final move either to a major firm or to the independent platform.

If you choose to move to a major firm, you may be able to reap the full financial rewards of moving AND receive an additional 150%-200+% from the firm to buy your book of business. This is one of the few cases where double-dipping makes sense!

You may also consider going independent. In this case, you would likely receive a SIGNIFICANT multiple of the profitability of your book.

There’s no one-size-fits-all answer when it comes to timing your move; however, Michael King Associates is here to help optimize your timing and maximize your payout.

Preparing for the Move

Another question advisors often ask is, “How can I put myself in a position to get a better deal when changing firms?”

The best way to prepare for a move is to make sure your book of business is in the best position possible. You will maximize your deal potential when your clients are happy. This normally occurs when the stock market is up.

Many financial advisors have had a positive experience transitioning to a new firm during the COVID-19 pandemic because they have had frequent contact and built strong relationships with their clients during this period of time. It’s a time when clients’ loyalty to their advisor has been stronger than their loyalty to the firm. In addition, many firms have had a difficult time going after clients because they do not have the staff available to do so.

The first step in determining the strength of your book is to go through, client by client, and assess how many will likely follow you, how many will likely choose to stay with the existing firm, and how many will be undecided. If you believe a majority of clients will follow you to the new firm, it may be a good time to make a change.

Considerations
When considering a move to a new firm, advisors also ask, “What should I be on the lookout for/worried about?”

There are several considerations to keep in mind as you weigh your options.

• Transfer fees – Some receiving firms charge a fee to clients for establishing a new account. Obviously, this is a deterrent for many clients. Make sure your new firm is willing to waive new account fees for a period of time while you transfer your book.

• Specialty products – If you have clients invested in specialty products at your current firm, they may be hesitant to transfer their accounts if the new firm does not offer a similar option. If your relationships are especially strong, these clients might be willing to leave a piece of their business at the existing firm while transferring the balance of their account to the new firm. Taking part of your book is better than taking nothing! You can always bring the rest later. However, this is something to explore prior to making a move.

• Firm employees – If you work with employees or retired employees of your current firm, it’s important to gain an understanding of their legal restrictions. Sometimes, employees of a firm are not allowed to move their accounts to another firm. Consider these restrictions as you evaluate how much of your book will need to stay behind.

• Legal arrangements – It’s also important to gain a thorough understanding of what you’re legally allowed to tell clients leading up to the move. In many cases, advisors are not legally allowed to tell clients what firm they’re moving to until after they have left their current firm. Your new firm should provide a lawyer who can help guide you through the transition process.

At Michael King Associates, we have decades of experience helping advisors navigate the various challenges of moving firms. Before you make a move, contact us for guidance. We can help you evaluate all your options and maximize your deal.

For more information about how we can help you negotiate the best possible transition package, please contact me directly at michael@michaelking.com, call the office at 212-687-5490 or call or text me on my cell at 917-747-4805. Remember, whatever we discuss is TOTALLY CONFIDENTIAL. Our firm has been around for a long time because we keep our word. At Michael King Associates, we specialize in helping advisors find their ideal place and achieve their best career path. We are your go-to “MATCHMAKERS!”

Besides money, what perks can be added to the negotiation?

As most employees know, there’s more to job satisfaction than just salary. The various benefits and perks offered can have a big impact on your decision to transition to a particular firm. What perks are on the table when negotiating a position at a new firm? Read on to learn about the most common negotiable benefits.

Sales support – When changing firms, most advisors have a goal of growing their book of business. To do so, you need dedicated, paid sales support. Having a sales team working to grow your business can free you from many administrative tasks and allow you to focus on building relationships.

Firms typically commit to sales support based on a ratio of production to assistance. This provides an opportunity to negotiate that ratio to your benefit. The more support you can negotiate, the better opportunity you will have to grow your business.

Travel and entertainment expenses – Be sure to negotiate a budget for travel and entertainment, as these expenses can quickly add up. Oftentimes, a travel and entertainment budget is based on a certain percentage of assets under management. There’s an opportunity to negotiate both the percentage and the timeframe for which the budget is guaranteed. Try to ensure travel and entertainment reimbursements are available for a minimum of one to two years.

Asset thresholds – Before starting negotiations with a potential new firm, take time to review your assets under management and identify any assets that cannot be moved. While many firms have dropped back-end bonuses, big players such as Merrill Lynch, Morgan Stanley and RBC continue to offer back-end bonus incentives for significantly growing your assets. If a back-end bonus is on the negotiating table, it’s in your best interest to have an accurate idea of what assets you can reasonably expect to transfer with you to the new firm. It’s in your benefit to lower your AUM to allow for more growth and bonus potential.

Office space – Office-related expenses can quickly add up. If you require office space, software programs, technology, printers, etc., be sure to negotiate these costs up front as part of the deal.

The number one piece of advice for any advisor negotiating a transition to a new firm is GET IT IN WRITING! Every single point, large or small, must be included in your employment contract. While this may seem like a no-brainer, I’ve worked with many advisors who were verbally promised certain perks or benefits by a manager they had grown to trust, only to have that manager leave the firm. At that point, there’s no recourse if the new manager doesn’t follow through. When push comes to shove, side agreements don’t carry any weight. Put it in writing!

If you’re interested in learning more about how we can help negotiate your transition to a new firm, I’d love to have a conversation. Please email me at michael@michaelking.com, call the office at 212-687-5490 or call or text me at 917-747-4805. At Michael King Associates, we specialize in helping advisors find their ideal place and achieve their best career path. We are your go-to “MATCHMAKERS!”

What Type of Independence is Right for You?

If you’re considering leaving the wirehouse world to go independent, you may be wondering what type of business model is best suited to meet your needs and help you achieve your professional goals. The type of independence you choose depends on several factors, including the level of external resources/support you require and how much control you hope to maintain over the daily operations of your firm.

Below is a summary of the most popular options for achieving independence.

Option 1 – Independent broker-dealer

Some advisors seeking independence move to an independent broker-dealer (IBD) platform, which allows them to continue with both fee-based and commission-based business. IBD platforms are offered by both national, well-known firms as well as smaller firms that may provide more personalized service. The most well-known IBDs are LPL, Ameriprise, Wells Fargo and Raymond James.

For larger producers who need additional support, firms such as Dynasty Financial Partners, Focus Financial and Hightower Advisors provide an added level of service for everything you will need to accomplish as an independent advisor. They provide support for all back-office and compliance functions so you can truly focus on building and maintaining client relationships, with few distractions. Although there may be an additional fee for these specialized services, it is often well worth the added expense in order to increase your business.

If choose to go this route, you will need to maintain your FINRA registrations. Payouts are typically between 85% to 90%, and you will be responsible for paying all firm expenses.

Option 2 – Independent RIA

If your business is primarily fee based, it might make sense to establish your own independent RIA without the support of a broker-dealer. Doing so allows you to reduce your fees and have the flexibility of using more than one custodian. Independent RIAs are regulated by the SEC, rather that FINRA. They typically employ an in-house compliance professional to help streamline processes and oversee compliance reviews.

Option 3 – Hybrid advisor

As the name suggests, a hybrid advisor (or dually registered RIA) is a mix between Options 1 and 2. Under this business model, the advisor is registered as both a Registered Investment Advisor (RIA) and a broker/dealer. Because of their dual registration, hybrid RIAs are eligible to receive both fee-based and commission-based compensation.

Hybrid advisors are typically responsible for their own client reporting and billing, and they often pay the broker-dealer to handle compliance oversight.

Regardless of whether you choose to operate as an independent broker-dealer, an RIA or a hybrid advisor, there are financial incentives associated with independence. Before you make any move, however, it’s important to speak with a qualified professional who can help maximize your deal. NEVER accept an offer until you speak with us. We’re here to help! We work with you to evaluate all of your options and decide on a course of action that meets your needs, as well as the needs of your clients.

If you’re interested in learning more about how we can help with your move toward independence, I’d love to have a conversation. Please email me at michael@michaelking.com, call the office at 212-687-5490 or call or text me at 917-747-4805. At Michael King Associates, we specialize in helping advisors find their ideal place and achieve their best career path. We are your go-to “MATCHMAKERS!”

An Opportunity to Maximize Your Transition to Retirement

One of the main concerns of financial advisors is how to successfully transition to retirement. How do you ensure your clients are provided for after your retirement while also securing the best deal for yourself? Although there are several options, we’ve found success in helping clients change firms. Following are two examples of how this might work.

Example 1
Joe Advisor is 55 and wants to retire when he’s 65. He decides to transfer to a large firm and is paid a very large financial package (300% plus, including unvested deferred compensation) by the new firm for bringing his book of business with him. Joe and his team continue managing his clients at the new firm for the next 10 years, generating fees as normal. At age 65, Joe is ready to retire. He receives another lump sum payout to carry him into retirement. The payout he receives is 2½ times his book, paid out over a five-year timeframe, with 70% paid the first year, 60% the second year, 50% the third year, etc. Joe did not have to transfer twice and his transition to retirement is seamless.

Another method for transferring firms as a succession planning strategy is to leave a big firm and go independent or RIA. It may work something like this:

Example 2
Jane Advisor wants to retire in five years. She decides to leave her big firm and transfer her book to an RIA. She signs a five-year contract and receives a smaller upfront lump sum payment than Joe who transferred to a larger firm. However, Jane’s deal allows her to receive a higher percentage payout on the assets, 80-90% on her production over the five-year period. Once her contract is up, she receives a lump sum payout to carry her into retirement, assuming she ran a profitable business. This payout can be a higher multiple than Joe received – four to six times her production. Her payout is also distributed over a five-year period of time.

While moving to an RIA was not as profitable in the short term as Joe’s move to a large firm, the benefit to Jane is that she was paid a higher fee on production for the years she continued working, and then received a substantial buyout package upon retiring.

The key to making this type of transition work for you is having a clear understanding of what you wish to accomplish. Do you have a junior partner you want to take over for you? Make sure that is clearly stated in your contract. Does it make more sense for your situation to have a larger lump sum payment, or a larger asset-based fee? Each firm structures its deals differently, so it’s important to thoroughly evaluate all your options and choose wisely.

Most importantly, do not accept any offer without first consulting with a professional recruiter! You may be leaving money on the table!

At Michael King Associates, we work with clients to identify the best succession planning strategy to meet their specific needs. If we determine it makes sense to transfer firms, we conduct a thorough review of multiple firms to identify the best opportunity for you. We then coordinate the process and the move to get you the best offer possible. Our fees are paid by the firm and do not reduce your payment/benefit package in any way. In most cases, we are able to ENHANCE your payment/benefits package at no cost to you. Be sure to call us before you accept any offer. We’re here to help!

If you’re interested in learning more about how we can help with your succession planning strategy, I’d love to have a conversation. Please email me at michael@michaelking.com, call the office at 212-687-5490 or call or text me at 917-747-4805. At Michael King Associates, we specialize in helping advisors find their ideal place and achieve their best career path. We are your go-to “MATCHMAKERS!”

How the Pandemic is Changing the Way Advisors Work

If there’s one thing that’s certain about the COVID-19 pandemic, it’s that it has changed the way we work and interact with one another. From virtual meetings and remote workforces, to a heavy reliance on technology, financial advisors have been forced to adapt and find new ways to serve their clients. I often talk (these days, Zoom) with advisors, and I’ve learned a lot about how the pandemic has impacted the way they work. Following are my biggest takeaways.

• Technology, technology, technology – Many advisors have told me the biggest challenge they’ve faced since the beginning of the pandemic is the shift to a remote workforce. When the coronavirus first reared its nasty head, they needed to quickly figure out how to manage their workflow, run the daily operations of their practices and communicate with team members and clients.

  To do so, they turned to technology. From automated workflow platforms to virtual meeting software and instant messaging, advisors sought a wide range of solutions. Some have even implemented interactive performance reporting and financial planning tools that can be used with clients in a virtual format.

  Advisors have also been forced to reevaluate their digital security protocols to ensure confidentiality and record retention for a remote workforce. While many firms had already made great advancements in this area, others needed to quickly improve their data security and make the switch to remotely managing internal controls and protocols.

  Takeaway: If they weren’t already, innovative technological solutions have become indispensable since the pandemic began. No longer does technology enhance an advisor’s practice, it’s now a vital part of daily operations.

• Virtual meetings – Most advisors I’ve spoken to have adapted to a remote workforce by holding virtual meetings with clients. Both clients and advisors have been forced to rely on video conferencing for meetings, performance evaluations, educational webinars, and more. This trend will likely continue even after the pandemic.

  The benefit of virtual meetings is that they cut down on travel time and scheduling challenges, making it easier than ever for advisors to interact with clients and prospects. Virtual meetings also make it possible for advisors to connect with clients across the country, providing a high level of personalized service regardless of where the client lives.

  Of course, meeting via computer screen is not the same as meeting in person. There’s no substitute for shaking your client’s hand and looking him or her straight in the face.

  Takeaway: While virtual meetings aren’t the same as in-person interactions, they offer flexibility and an opportunity to meet with clients regardless of their location.

• More time for client interaction – Our office is located in New York City, so I’m no stranger to commuting. And, while I strongly believe that working together in an office is the best way to foster idea flow and collaboration, one big benefit to not commuting is the additional time available that would have otherwise been spent traveling to and from the office.

  Many advisors I’ve talked to are using this extra time to check in with clients. As a result, they’ve been able to proactively address their clients’ needs, allay their fears and build stronger relationships. If that’s not a win-win for both clients and advisors, I don’t know what is.

  Takeaway: Advisors are using the time saved by not having to commute to strengthen relationships with clients.

• Opportunities to grow – Historically, clients switch advisors in uncertain times, especially when they feel they haven’t received an adequate level of attention and support. Clients are also more likely to seek a second opinion when market volatility negatively impacts their portfolio. The good news is that there may be significant opportunities to pick up new clients. On the flip side, however, it’s important to ensure you’re checking in regularly with your existing clients to make sure they’re feeling supported and content.

  Takeaway: Uncertain times can provide a great opportunity to pick up new clients, but don’t forget to check in regularly with your existing clients.

While it’s true that COVID-19 has significantly altered the way we work and interact, my key takeaway is that as long as advisors continue to find new, innovative ways to serve their clients, they will be successful. Whether it be new technology, enhanced services or more frequent meetings, motivated advisors have the potential to thrive in any environment.

I’m happy to discuss recent hiring trends, your current situation and your goals for the future. You can reach me by email at michael@michaelking.com, call the office at 212-687-5490 or text me at 917-747-4805.

Morgan Stanley Wealth Management saw fee-based asset flows jump 54% year-over-year, a surge accelerated in part by the wirehouse’s stepped-up recruiting efforts, said CFO Jonathan Pruzan during the firm’s third-quarter earnings call Oct. 15.

“We’re seeing Morgan Stanley become the destination of choice for financial advisors,” Pruzan said.

Morgan Stanley reported fee-based asset flows of $23.8 billion for the third quarter, up from $15.5 billion for the same period last year. About half of the wirehouse’s $2.8 trillion in client assets are fee based.

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Amid a tumultuous year of market volatility and a global pandemic, Rockefeller Capital Management is on a recruiting hot streak.

The firm has picked up roughly two dozen elite teams, eclipsing the 15 it added from December 2018 through year-end 2019.

The moves further Rockefeller’s efforts to develop a boutique firm catering to wealthy clients and their advisors, and show that there’s room for another competitor in the recruiting marketplace.

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