by Jack Waymire
Let’s assume you are the owner of a company and you are interviewing candidates for a new position. You just interviewed an excellent candidate, but there was one problem. The candidate had a history of changing employers every few years. The question you have to ask yourself is why does the candidate have so many previous employers, why did he leave, and do those reasons create risk for you?
You should use a similar process when you interview financial advisors who have histories of frequent job changes.
Financial service companies pay big bonuses to financial advisors who change firms. For example, if the advisor generates $1 million per year of revenue, the bonus might be $1.5 million. The companies borrow money to pay the bonuses to advisors. The advisor’s future revenue pays off the loan and the interest. The companies protect themselves by requiring advisors to sign five-year notes that are due and payable if the advisor decides to leave early.
FINRA is the agency that regulates financial advisors who hold securities licenses. You should obtain the advisor’s CRD number and look him up in the FINRA database to review client complaints and the advisors’ number of previous employers.
Commission to Fee
There is a 25% chance that you benefit when your financial advisor changes firms. The single biggest benefit occurs when advisors leave broker/dealers that sell products for commission to start or join a Registered Investment Advisory firm that provides financial advice and services for fees.
Some advisors refer to changing firms as going “independent”. That is they changed firms so they can provide independent advice that is free of conflicts of interest, to their clients. This is a major benefit for investors if the financial advisor is truly in a position to provide this type of advice. Watch out for sales ploys.
Excessive Job Changes
When is frequent job change a problem? Any advisor who has worked for more than three firms in the past ten years should be required to document the reasons he went to the companies and the reasons he left the companies. Documentation is important so you have a written record of the advisors’ responses.
Key Questions for Financial Advisors
Following are five questions you should ask current advisors who change firms frequently:
- Are you an employee, independent contractor, or owner?
- Did you receive a bonus to change firms?
- What firm will act as custodian for my assets?
- What happens if I decide to follow you to your new firm?
- Are there any legal repercussions that impact me?
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