Few things may be as painful as choosing a broker-dealer that you later regret.

The key to making the right choice is your due diligence process and assessing whether you are hearing the truth or being sold a bill of goods regarding the matters that are important to your assessment criteria. Understand that the criteria may be somewhat different if you are brand-new to the field and need to get licensed, versus already being licensed, with both clients and experience.

Changing from one firm to another once you have a critical mass of clients is never a simple task, and some firms are better at assisting with transitions than others. Don't let the fear of change prevent you from leaving a firm that is not helping you - thousands of registered representatives of broker-dealer firms do it each month.

If you are new to the securities side of the financial planning business, you may not even know where to start with your needs. It may take a few meetings with prospective broker-dealers and colleagues who may also be registered representatives before you can clearly articulate what you are looking for.

Before we go too far into the criteria that I think may be helpful for you, let's first give a primer on exactly what a broker-dealer is and whether or not you even need one. A broker-dealer is an entity licensed to sell securities for a commission. In the old days, many licensed registered reps of BD firms sold stocks and load funds to clients for commissions in lieu of management fees. While that has changed significantly in the past decade, there are still veterans in the industry who trade stocks or manage portfolios for commissions, rather than fees. I have not seen much commission-only business in the CPA FP space.

CPA financial planners sometimes use broker-dealers for products that may be a better fit for smaller clients or those unwilling to pay fees. These frequently involve variable annuities, small to midsized retirement accounts, and mutual funds with sales loads for certain clients who are either too small for a fee-based managed account or unwilling to pay ongoing management fees.

If your choice is to go the fee-only route, and accept no commissions, you don't even need a broker-dealer. Creating or affiliating with a registered investment advisor firm along with a Series 65 license is all you need. Before you make this decision, make sure that you really understand the demographics of your practice. If you have many smaller clients, a broker-dealer may be the most efficient way to service some clients.

Another reason why some firms choose to avoid affiliating with a broker-dealer and obtaining securities registration is to avoid the complexity of BD rules and compliance requirements established by the Financial Industry Regulatory Authority. RIAs, on the other hand, are regulated by the Securities and Exchange Commission (for now), and may have appeared less restrictive in terms of regulation and compliance requirements. Since the Madoff scandal, however, there has been tremendous focus on the future of regulating RIAs, with no decision made as of this writing. If I were a betting man, I'd say that we can expect parity in regulations between registered reps of BDs and investment advisor representatives of an RIA firm. Please note, however, that I made the same statement a year ago and nothing has changed since then. The noise about who should regulate financial planners, however, is even louder this year, with industry professional groups now weighing in with their preferences.

Advisors with a diverse client base frequently get both securities registration and affiliation with an RIA. These advisors who are dually registered as reps of a BD and IARs of an RIA are known as hybrid advisors by many. This is a very popular option.



Given the unique nature of a CPA FP practice, one of your more important considerations may be the culture of a prospective BD. Most CPAs would be uncomfortable being a part of an organization that was dominated by a sales culture, rather than a service culture.

As you attend firm events and conferences, many CPA FPs want to know that there are others in the firm with very similar circumstances, challenges and opportunities. Learning from your peers is a big part of the maturation process as a financial planner. You also want to assess whether the BD firm understands your culture, and that they are able to support your specific needs. There are both BD and RIA firms with niche specialties of building a vibrant wealth management process inside or alongside of a CPA firm.

Learn about the profile of the prospective firm's existing rep base. Ask for the types of firms that they work with, whether they are large or small. Ask for average revenue statistics per registered rep of the firm, along with a breakdown of that revenue by lines of business, such as brokerage, insurance-based products, funds etc. Any information that they give you may be generally corroborated with the publications that offer statistics and sometimes rankings of BD firms. After a conversation with a few, it should be fairly clear who may be able to help and who doesn't have a clue what you really do for a living and how you want to get there. Also ask to attend one of the firm's conferences and see how you fit in or appreciate the types of reps that the firm has recruited in the past.

Another material consideration is the level of support that you need and the firm provides. Recognize that many of them will tell you that they have unmatched support. Unfortunately, in my personal experience, not all can live up to that claim.

Support can come in many ways; namely in the areas of training, marketing and proactive business development, succession planning, transition assistance, technology, and expertise. One of the biggest disappointments of CPAs who entered the financial planning and securities world over the past decade is what I call the "Field of Dreams illusion" - many CPAs-turned-planners thought that all they had to do was build that division and clients would flock to it. In my experience, many of the less savvy marketers have either left the FP business or are still fledgling planners and on the low end of productivity and profitability for that division 10 years later.

In my opinion, a good CPA practice should be able to cause revenues from FP to equal or exceed the revenue generated from the tax department within three years. I know because I did it myself in the 1980s, and have since mentored many others around the U.S. to equal or greater success.



There are two levels of training that may be important to you. The first is with respect to the specific systems and processes of the prospective BD that you'll need to use in order to do business. Online training is great, but there is no substitute for a real live person who can hold your hand through real-time training. Without both good training and good documentation to refer to about the systems and processes that you'll use every day, you'll be wasting a lot of time.

You may also be looking for some sort of technical or professional training, including CPE or CE credits. Ask to see the firm's catalogue of courses or a sample of an agenda from one of their most recent meetings. The better firms offer so much in the way of training that you'll need to attend fewer third-party educational sessions, saving both money and time.

Marketing and business development training and resources may be the most important part. Most CPAs, unfortunately, are not great marketers. But marketing and creating awareness to your existing clients and your centers of influence about this valuable service is significantly more important than most CPAs want to believe. Just ask the top performers how they got there, and marketing is frequently a big part of it.

Succession planning is an issue plaguing all professions, especially in the CPA, insurance and financial planning worlds. This is something that needs advanced thought. If your financial services practice is very successful, and you do not have a written succession plan in place upon your passing, the results may be disastrous for any heirs who may have counted on revenue from the sale of your practice. Because of the tight regulation of RRs and BDs, getting this done right can make a world of difference. Find a broker-dealer that understands and has a way to help.

Transition assistance is another slippery slope. Every broker-dealer will tout its transition experience of joining up and transferring client accounts as seamless. For many firms, nothing could be further from the truth, and the only way to feel good about your assessment of a firm's transition assistance is to talk to reps that have recently transitioned to the BD. It may be best to find newer advisors by yourself, rather than simply getting three names from the firm. You might ask for a list of the last x reps to join the firm and randomly choose who to speak with.

Evaluating a BD's technology may be the most difficult part of the process. The promises some make may be far from what they actually offer. Evaluate whether the technology is proprietary or made up from systems provided through a custodian firm and shared by many different BD firms. Ask users who have transitioned to your firm of choice how they like the technology and whether it compares favorably to what they were told and what they wanted or had at a prior firm.

Expertise is also a very significant factor for CPA FPs. While the CPA FP community may be highly educated and credentialed, even they will eventually realize that they do not know everything and can benefit greatly from having a stable of subject matter experts at their disposal. Having access to these experts that you did not have before may be the best way to ratchet up the quality of your client base. Make sure that your newly formed deep resources are not kept secret from your clients and centers of influence, and incorporate these resources into your marketing and communications plan.

In the past year, a new term has been coined. This term is "tuck-in." A tuck-in is when an advisor joins a broker-dealer through one of its larger Office of Supervisory Jurisdiction offices. The benefits of joining a new BD through a larger OSJ may be helpful in terms of transition assistance, training, culture, coaching, systems and scale, compliance, and greater clout and attention from the BD due to their larger presence and volume.

Of course, your payout rate and other costs that either you or your clients will be asked to pay are also a consideration. But here, looking for the low-cost provider (or conversely, the highest payout payer) may be analogous to using the low bidder to build you a custom home. If that is your style, then go for it. But if you research trends regarding the most valuable wealth management practices, you'll see that the characteristics that buyers value are client satisfaction, your marketing efforts, the scalability of the systems and processes that you use, and your bottom line - not the payout rate you are receiving or the cost of errors and omissions insurance or client trading.

But before you have a good bottom line, you need strong top-line revenue. And that may be the most important part of this whole process: finding a partner who can help with building your top-line revenues.


John Napolitano, CFP, CPA/PFS, is chair and CEO of U.S. Wealth Management, in Braintree, Mass. Reach him at (781) 849-9200.

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