Sometimes, changing broker-dealer affiliations is the right thing to do. never is it easy, and for those without a good support system, there will be some form of pain. But 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 found in your diligence process, where you will assess all of the wonderful features and benefits of the new firm (watch the video "Choosing a Broker-Dealer" below) The criteria may be somewhat different for new players to the world of the Financial Industry Regulatory Authority licensing, versus those already licensed with clients and experience. Changing from one firm to another 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 improve their business by changing firms each year.

This 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 with your needs. It may take a few meetings with prospective firms and colleagues who may also be registered representatives before you are able to clearly articulate what you are looking for.



Before we go too far into the criteria, 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 representatives of BD firms sold stocks and load funds to clients for commissions in lieu of management fees. While that has changed materially in the past decade, there are still veterans in the industry who trade stocks or manage portfolios for commissions, rather than fees. There doesn't seem to be much commission-only business in the CPA financial planning 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 products include variable insurance products, small to midsized retirement accounts, and investment products with sales loads. These may be best suited for clients who are either too small for a fee-based managed account or who are 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 serve them.

Another reason why some firms chose to avoid affiliating with a broker-dealer and obtaining securities registration is to avoid the complexity of BD rules and the compliance requirements established by FINRA. RIAs, on the other hand, are regulated by the Securities and Exchange Commission (for now). Some thought that the rules for RIAs are less stringent and restrictive compared with those from FINRA, but that is not true. Since the Madoff scandal in particular, there has been tremendous focus and discussion on the future of regulating RIAs. The direction of regulation and supervision will require a greater compliance effort on both sides, with parity in regulations between registered reps of BDs and investment advisor representatives of an RIA firm a possibility.

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



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 that they have. Learning from your peers is a big part of the maturation process.

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 who have the niche specialty 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 ranking 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. Also, ask to attend one of the firm's conferences and see how you fit in with the reps that the firm has recruited in the past.

Another material consideration is the level of support that you may need and the level of support offered by the firm. Support can come in many forms. You may need help with training, marketing and proactive business development, succession planning, transition assistance, technology and expertise.

In my experience, many of the less-savvy communicators have either left the planning business or are still fledgling planners and on the low end of productivity and profitability 10 years later. In my opinion, a good CPA practice should be able to cause revenues from financial planning to equal or exceed the revenue generated from the tax department within three years. I believe this 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. 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 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 continuing education credits. Ask to see the firm's catalogue of courses or a sample of an agenda from one of their recent meetings. The better firms offer so much in the way of training that you'll need to attend fewer third-party educational sessions.

Marketing and business development training and resources may be the most important part. By now, you are either a great marketer or not. Most CPAs, unfortunately, are not. 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 good communications are always a big part of it.

Succession planning is an issue plaguing CPAs. 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, the results may be disastrous for your heirs that may have counted on revenue from the sale of the practice. Because of the tight regulation of RRs and BDs, getting this done right can make a world of difference. Find a firm that understands this and has done it for other advisors.

Transition assistance is another slippery slope. Every firm will tout their transition experience of joining their firm and transferring client accounts with ease. For many, nothing could be further from the truth, and the only way to feel good about a firm's transition assistance is to talk to reps that have recently transitioned to the firm. Evaluating a firm's technology may be the most difficult part of the process. The promises made by some firms may be far apart from the experience of their advisors. 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 the firm how they like the technology.

Expertise is also a very significant factor. Access to subject matter experts that you do not have in your firm can be helpful. Design a tasteful marketing and communications plan to make sure that your newly formed deep resources are not the best-kept secrets among your clients and centers of influence.



Compensation and 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 the characteristics in common of the most valuable wealth management practices in America do not include being the low-price provider. They include expertise and concierge-level service that is relevant to what the client wants. Scalable systems and processes will allow you to spend more time with your top clients generating revenue.

Instead of making the payout rate you are receiving or the cost of errors and omissions insurance or client trading the deal-killer, imagine how efficient you could be with great systems and processes for your wealth management division and a dependable partner. But before you have a good bottom line, you will 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 firm's top-line revenues.

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

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