Changing Broker-Dealers: Part 2 of 3 – Five Questions to Ask

In last week’s blog post, I had set the stage for what to be thinking about before changing firms.

This week, we’ll focus on the first five questions to ask … and why.


Question # 1: Tell me about your technology package offering. How does it all integrate together?

Why this is important: The importance of technology today is greater than it ever has been. Having the right technology can save you hours of time and reduce overhead costs on human resources. The critical question to ask is how the technology offerings integrate with each other. If you have 7 pieces of technology and none of them communicate with each other, you’re likely to become very frustrated and your practice will quickly become disjointed. Some firms don’t offer much in the way of technology. Others offer an “a la carte” approach. BOTH of these can be very dangerous to the advisor who wants to advance his/her practice. Look for a broker-dealer that has a comprehensive technology package where the pieces work together as a cohesive solution for you in your practice.

Question # 2: Does your E&O insurance cover prior acts?

Why this is important: A surprising number of E&O policies offered do not cover prior acts. Let’s assume you switch broker-dealers. A year goes by and one of your clients from three years ago files a complaint. Let’s assume that this complaint would NORMALLY be covered by errors and omissions insurance. If the E&O insurance offered by your new broker-dealer doesn’t have “prior acts” coverage, you are S.O.L. This is more common than you might think.

Question # 3: What marketing systems do you offer? How will you help me grow my practice?

Why this is important: A large percentage of broker-dealers see themselves as nothing more than business processors. If marketing, branding, and new client acquisition is important to you, it is imperative that you align yourself with a broker-dealer who is marketing-minded. You’ll want to find a broker-dealer that will help you create marketing systems, grow your brand, and get in front of more potential clients. If they outsource their marketing offerings, it’s a sure sign they aren’t investing in you.

Question # 4: Do you have a selling agreement with ______? What is your process for approving new agreements?

Why this is important: If a large percentage of your business is with a particular money manager or other offering requiring a selling agreement, it’s best to find this out early in the process. Don’t be quick to judge if a broker-dealer doesn’t have a selling agreement with a particular investment that you like. Find out why they don’t have it. Recognize that these agreements are a liability for a broker-dealer, and that exercising caution before just pencil-whipping an agreement is imperative.

Question # 5: How do you feel about outside business activities?

Why this is important: If you have certain OBAs, make sure the potential b/d you are considering is aware of them. Ask questions about how they handle that type of business. If you sell life insurance or annuities as an OBA, find out their rules for how this business is treated in advance. It’s important to recognize that a broker-dealer does carry some level of liability for their reps’ outside business activities.

1 Comment for “Changing Broker-Dealers: Part 2 of 3 – Five Questions to Ask”

Share your thoughts on this...