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Is The Risk Of Switching Firms Worth The Reward?
Here are five criteria for advisors considering a move.
By Wendy Leung
ADVISORS WHO THINK OF SWITCHing firms have a lot to think about. As everyone knows, these moves, even if they work out best for everyone, can be disruptive to the firm the advisor is leaving and to its clients, not to mention the advisors themselves.
Why, then, are so many teams willing to make a change, even when the status quo is more than good enough? Clearly, these teams have decided that the short-term risk and disruption will ultimately be worth it in the long run. But that’ s difficult to know in advance.
So how should advisors think about risk versus reward when considering a move?
Most of them begin the exercise by looking at two important metrics: the expected amount of the assets that can move with them and the value of the transition package in the recruiting deal. But they should also consider the impact on their clients, their team and their future growth potential. Only by looking at this all holistically can a team truly decide if the pain is worth the gain.
1. Transition Money
One of the ways an advisor can dampen the risk is to take transition capital. That up-front capital helps them deal with the disruption to their cash flow and can help diminish the pain they’ ll feel by walking away from deferred compensation at their old firm. The good news is that transition capital hit a high watermark in 2024, with top deals in the wirehouse world reaching 400 % of the trailing-12-month revenue for some high-earning teams. Regional firms often offer less than that, from 225 % to
300 %, though a couple of notable outliers approach the wirehouse payouts. Even in the independent broker-dealer landscape, where transition deals used to be modest, we are seeing deals reach 100 % or more for the best teams.
That leaves advisors with options. Ultimately, they’ ll need to assess how much up-front capital they need in the short term and measure that against the long-term economics and enterprise value creation that comes with independence.
2. Portability
One of the biggest questions for a departing advisory team is whether their clients will follow them. The team will have to assess the strength of their current client relationships and decide which products can be transferred.
If you’ re thinking of moving, you’ ll want to divide your clients into three buckets: those who will move, those who may move, and those unlikely to move. Figuring out who goes where will mean taking into account the scope, length and genesis of the relationships. Once the clients have been categorized, you’ ll want to calculate the percentage of revenue and AUM in each group— and possibly decide which clients you want to leave behind. This is a great chance to pare down your book to focus on the relationships of higher value and make room for new
24 | FINANCIAL ADVISOR MAGAZINE | MAY 2025 WWW. FA-MAG. COM