What You Need to Know Before Changing Broker-Dealers: Part 1 of 3

The decision to change broker-dealers is not something to make without an awful lot of careful consideration. The wrong broker-dealer can make your life miserable. The truth of the matter is that the wrong broker-dealer for you might be the right broker-dealer for somebody else, so asking other reps what they think of their broker-dealer should NOT be your deciding factor.

In a moment, I’ll share with you 10 critical questions to ask of your new, prospective broker-dealers. These questions go far beyond what advisors normally ask.

The typical advisor questions include the obvious items:

  • While it may be difficult to discern what the culture is like at the broker-dealer by asking a few questions, you can usually identify this by talking with other reps and/or visiting the broker-dealer before making the decision. If the home office culture is one that fits you, that’s a great first start.


  • If there has been recent turnover at the executive level or if you quickly identify that many of the b/d employees are brand new to the firm, it might be an indication that the b/d doesn’t treat their employees very well. If that’s the case, don’t expect them to treat you much differently. A good broker-dealer treats their employees the same way they would expect their employees to treat their top representatives.


  • Regulatory history. This one is simple. Ask about their regulatory history (you can also do the homework yourself these days). Don’t forget that when you saddle up with a broker-dealer, you’ll likely feel some of the bumps in the road. Just ask any rep whose broker-dealer caught negative press over the past 5-10 years. Or worse yet, if the broker-dealer all of a sudden went out of business.


  • More often than not, payouts are the first thing an advisor looks for when they are considering making a move. While payouts are important, don’t get caught with your “payout” blinders on as you are making a change. If a broker-dealer can help increase your production and make your life easier, it might be worth giving up a percentage or two.


  • You’ll want to make sure you are aware of the costs associated with doing business with your new broker-dealer. Different costs may include E&O insurance, affiliation fees, compliance fees, technology packages, and trading costs. Do your homework in advance so there aren’t any big surprises.


  • Average rep. revenue. You’ll want to make sure that you are aligning with a firm that can support the type of representative you are and plan to be in the future.

These are the obvious items that most advisors are prepared to factor in as they consider a new broker-dealer. However, in our experience, we’ve seen a number of advisors fail to ask the most critical (and basic) of questions … we’ll cover the first 5 next week.

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