When a retiring advisor’s clients know their advisor's plan for retirement and have started to build a relationship with the successor, success that the book will transition and stay with the successor is much more likely. On the flip side, if an advisor is nearing retirement, and clients are left wondering what will happen next, the retiring advisor is sending a message to the clients that they should start looking for a new advisor. This is precisely why having a clearly-defined succession plan helps to ensure that advisors maintain both business and personal relationships as they transition.
The development of a strong succession plan can have a long lead time. It can take at a minimum of 3 to 5 years to make sure all systems are in place.
Five Considerations To Make When Transitioning:
Step 1: Find The Right Successor
One of the most difficult steps of succession is finding the right advisor to take care of the clients for whom you have been responsible throughout your career. These are people whom you have been helping to achieve most of their life’s milestones.
Whether you look outside the firm or end up handing your clients over to someone at your current firm, be sure to give yourself enough lead time. This part of the process always takes longer than you expect. The goal should be to find an advisor with a similar style and personality as yours. This will make it easier on the client and will likely lead to lower attrition.
Step 2: Determine Which Financial Institution You Feel Comfortable With
If you decide to stay associated with your current broker-dealer, there will likely be less issues, and this is—by far—the path of least resistance. However, if your future successor is at another broker-dealer, it is very important to work with the new broker-dealer’s transition team to make sure that your current book of business will map over properly and that clients will not be impacted negatively by the move. This will help to minimize the fallout potential.
3. Decide What You Want From Retirement
Not everyone feels comfortable completely shutting down a career and letting go of countless long-term relationships. So consider whether you want to continue to work part-time for a few years and slowly shut it down or if you would prefer to make your plans known far in advance and walk out with no strings attached.
Just as you have coached your clients on the many different investment options, you should start thinking about what you want the next phase of your life to look like. Once you have made some personal retirement decisions, you can begin putting the timeline of your plans in place.
4. Develop A Written Contract
It is imperative that all of the verbal agreements and informal arrangements become part of a formal, written contract. Not only does this offer clarity and a solid understanding for all parties, but it can also serve as a blueprint for your succession plan. It’s best to work with a legal professional, in order to make sure that you and your potential successor are on the same page. Eliminating any gray areas is essential.
5. Let Go
At this point in your career, most of your long-term clients are like family members. The relationships that advisors create with their clients are what makes them come to work every day. Advisors really struggle, wondering if the next advisor will always be there for their clients in the same what that they have been all along. At this point, remember that you picked your current successor for a reason and that it is now their time to take the reigns.
On Wednesday, while on vacation, an advisor got a call from his broker-dealer’s compliance department. It was from a young woman who was fairly new to the compliance team. She accused him of altering client-signed documents and cutting and pasting a client signature. In essence, the financial advisor was being accused of fraud.
The advisor got on a plane home Thursday, very concerned for his future and with good reason, as it turns out.
On Friday, after reaching out to contacts in the securities industry and receiving a referral, he engaged Michelle Atlas at AdvisorLaw. Michelle spent 10 years on compliance teams at broker-dealers and now works for individual advisors, helping them protect and defend their livelihood.
Together, over the next week, Michelle and the advisor crafted carefully-worded responses to multiple emails from compliance. Ultimately, the compliance supervisor became involved. Michelle coached the advisor on how to respond to specific questions when he was on the phone with compliance.
In the end, the following Tuesday (13 days later), the advisor was required to affirm in writing his understanding of the firm policies. The event was over—no heightened supervision, no letter of caution, no further actions by the firm.
This could have gone very differently. The compliance supervisor confided that, earlier in the year, the firm had ultimately terminated another advisor for a similar instance. Once a U5 termination is filed, FINRA often opens a regulatory inquiry, which can then lead to a FINRA enforcement action and may ultimately end in sanctions, including a fine and a suspension or even a bar from the securities industry.
How you respond to what may seem like an innocent compliance question regarding any of your sales practices or document processing can be the difference between a few hours of inconvenience and the destruction of your hard-earned business. It only makes sense to ask a professional for help.
Defense attorneys often lament that they spend most of their time trying to reposition and reframe statements that a client has made in response to an initial question. When a person is taken off guard, because he cannot believe he is being accused of some wrongdoing, he is not at his best.
Thankfully, this financial advisor had the wisdom to reach out to an experienced professional. Now, for him, it is business as usual.
When you click on the “About FINRA” hyperlink located at the very top of FINRA’s website, the first sentence you will see is:
“FINRA is dedicated to investor protection and market integrity through effective and efficient regulation of broker-dealers.”
In fact, you will see the words “investor protection” countless times on FINRA’s website and throughout its regulatory notices and guides. The names below are changed but the very true case you are about to read really begs the question of to what, exactly, FINRA is “dedicated.”
AdvisorLaw has been retained by previously-registered broker, Mr. FA. In 2012, while he was finishing his undergraduate coursework, FA began his securities industry career with broker-dealer, The Firm, in California. FA was registered with The Firm for less than one year in 2013, as he had plans to attend graduate school in Massachusetts for a Master’s of Business Administration, right after completing his undergraduate degree.
In 2012, an acquaintance of FA’s, Mr. X, reached out for some assistance with his portfolio. At the time, Mr. X had a self-managed account at another firm, where he was engaged in penny stock trading. FA made some general recommendations, but Mr. X was hesitant.
In September of 2013, Mr. X reached out again. After several conversations and a proposed financial plan, Mr. X decided to open an account with The Firm. FA had Mr. X execute the necessary paperwork, including the transfer forms needed for the previous firm to move money to the new account with The Firm.
About a month later, Mr. X had a change of heart and decided that he wanted to go back to his self-managed platform with the previous firm. Mr. X alleged that he had never authorized FA to open the account or to move his funds to The Firm.
Around this time, FA was gearing up for graduate school. The Firm told him that it would handle the complaint. The Firm investigated Mr. X’s allegations and denied his customer dispute.
After FA had been at graduate school for a month, Mr. X filed for arbitration with FINRA. FINRA then opened an investigation inquiry after receiving Mr. X’s claim. However, instead of sending the initial FINRA inquiry notice to FA, now at school in Massachusetts, FINRA sent the 8210 Letter to his California address.
In Mr. X’s arbitration claim, he requested compensatory damages totaling $600, punitive damages totaling $49,000, fees, and a declaratory judgment that his investment account was not valid. An attorney, hired by The Firm, represented FA at the FINRA arbitration hearing.
On May 29, 2014, the arbitration panel, made up of FINRA-authorized arbitrators, denied Mr. X’s claims in their entirety. In other words, the arbitration panel empowered by FINRA, found that the claims had no basis for relief.
On May 30, 2014, FINRA issued a suspension letter to FA for failure to respond to the inquiry investigation letter. Yet it was not until he was informed by his family, after they received the FINRA inquiry notice, that he was even made aware of the inquiry for the first time.
FA called FINRA, and FINRA informed him that he had been named in an arbitration by Mr. X and that a formal regulatory investigation had been opened into Mr. X’s allegations. FINRA also informed him that The Firm had hired an attorney to represent him.
Despite the fact that Mr. X’s investor claims had already been denied in their entirety by an arbitration panel, FINRA pushed forward with its investigation. FA, with the guidance of the attorney hired by the firm, responded to FINRA’s 8210 letter inquiry and attended an OTR (On the Record) interview. FINRA later presented an AWC (Acceptance, Waiver and Consent) to FA, with the “Facts and Violative Conduct” section being an exact regurgitation of Mr. X’s claims—the claims that had already been denied by both The Firm and the FINRA arbitration panel.
The attorney hired by The Firm, for some reason unknown, encouraged FA to sign the AWC, stating that the only consequences would be the $15,000 fine and 20-month suspension, the majority of which would occur while FA was finishing school anyway. The attorney advised him that he had his whole career ahead of him, and failed to inform FA of the permanent black mark that would be attached to his CRD record and BrokerCheck.
Fast forward to present day, and FA has not been able to obtain another job in the securities industry since he left The Firm.
Now, there is much to be inquired about the arguable malpractice on the part of the attorney supposedly representing FA, but the real questions here are glaring:
The reason why we must keep asking these questions is exactly why AdvisorLaw fights and represents only the interests of the financial advisor.
Erica Harris, J.D.
This blog is our ongoing effort to inform and educate FINRA licensed professionals about the evolving regulatory ecosystem in which we operate.