Few things can be as painful as choosing a broker-dealer that you later regret. the key to making a switch worth your while is your 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.

The criteria may be different if you are brand-new to the field and need to get licensed, versus already being licensed with both clients and experience, but in either case, I believe that the search starts with an assessment of your needs. If you are new to the securities side of financial planning, you may not even know where to start. It may take a few meetings with prospective broker-dealers and colleagues before you are able to clearly articulate what you're looking for.



A broker-dealer is an entity licensed to sell securities for a commission. In the old days, many licensed registered representatives of BDs sold stocks and load funds to clients for commissions, in lieu of management fees, but this has changed materially in the past decade, and I have not seen much of it in the CPA/PFP 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 you 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 along with a Series 65 license is all you need. Before you decide, make sure 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 and may have appeared less restrictive with regulation and compliance requirements. Since the Madoff scandal, however, there has been tremendous focus and discussion on the future of regulating RIAs, with no decision made thus far.

Advisors with a diverse client base frequently get both securities registration and affiliation with an RIA. Those dually registered as reps of a BD and investment advisor representatives of an RIA are known as hybrid advisors. This is a very popular option.



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 planners want to know that there are other reps with similar circumstances, challenges and opportunities.

You also want to assess whether the broker-dealer understands your culture, and is able to support your specific needs. Learn about the profile of the BD's existing rep base. Ask for the types of firms they work with, whether they are large or small. Ask for average revenue statistics per registered rep, 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 can generally be corroborated with publications that offer statistics and sometimes rankings of broker-dealers.

After a conversation with a few broker-dealers, it should be fairly clear which may be able to help and which don't have a clue. Also, ask to attend one of the BD's conferences and see how you fit in with 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 broker-dealer provides. Many of them will tell you that they have unmatched support. Unfortunately, in my opinion, not all can live up to that claim.

Support can come in many ways: in 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" - that all they had to do was build the division and clients would flock to it. In my experience, many of the less-savvy marketers have either left the PFP business or are still fledgling planners and on the low end of productivity and profitability. A good CPA practice should be able to cause revenues from financial planning to equal or exceed the revenue generated from the tax practice within three years. I did it myself in the 1980s, and have since mentored many others around the U.S. to equal or greater success.



Two levels of training may be important. The first is with respect to the specific systems and processes of the 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 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 catalogue of courses or a sample of an agenda from a recent meeting.

Marketing and business development training and resources may be the most important part. Marketing to and creating awareness among your clients and centers of influence about this valuable service is significantly more important than most CPAs want to believe.

Succession planning requires advanced thought. If your practice is very successful and you do not have a written succession plan in place, the results may be disastrous for any heirs that may have counted on revenue from the sale of your practice. Because of the tight regulation of registered reps or broker-dealers, getting this done right can make a world of difference. Find a broker-dealer that understands this and has a way to help.

Transition assistance is another slippery slope. Every broker-dealer will tout their process for joining them and transferring client accounts as seamless. The only way to feel good about your assessment of a broker-dealer's transition assistance would be to talk to reps who have recently transitioned to that BD. It may be best to find newer advisors of the BD by yourself, rather than simply getting three names from the broker-dealer.



Evaluating a broker-dealer's technology may be the most difficult part of the process. Evaluate whether it is proprietary, or systems provided through a custodian firm and shared by many different BDs. Ask users who have transitioned to the BD how they like the technology and whether it compares favorably with what they were promised and what they wanted.

Expertise is also very significant. While the CPA financial planner may be a highly educated and credentialed individual, 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 may be the best way to ratchet up the quality of your client base.

Of course, the 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 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 & 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.


John P. Napolitano, CFP, CPA, PFS, is chairman and CEO of U.S. Wealth Management in Braintree, Mass.

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