Broker Transitions During the COVID-19 Pandemic

The market for financial advisors to transition from one firm to another is thriving despite less broker dealers being part of the Broker Protocol, the global economy being at a near standstill, and millions of Americans applying for unemployment on a weekly basis. The wire houses are actively recruiting and Fidelity recently announced its hiring efforts: With a volatile stock market causing extreme angst among investors, advisors are in high demand as they calm unsteady nerves and identify investment opportunities for weary clients. Given these realities, it would seem an unlikely time for advisors to make the jump from one firm to another. But many advisors – and the firms who have stepped up their recruiting efforts during the pandemic – feel otherwise.

Attempting to move an entire book of business during unprecedented market volatility can certainly be a risky endeavor, but there are good reasons to consider taking the leap at this particular time. Having experienced counsel will help too.

First, in light of the stock market roller coaster of the past several weeks, investors are more inclined to remain with the advisor upon whom they’ve come to rely, regardless of which firm he or she works.

Second, given the social distancing mandates currently in place requiring all non-essential workers to remain home, firms will face greater challenges trying to retain a book than it otherwise might during normal times. Inheriting brokers will not be able to meet clients in person. Coordinating calls to clients of departing advisors will prove more difficult when a central location is no longer in the cards, providing a marked advantage to the departing FA as they scroll through their phones to provide their clients with information regarding their move.

Third, with the courts moving to a virtual platform and discouraging unnecessary emergency motions, obtaining a temporary restraining order (TRO) and/or a preliminary injunction in court to enjoin the departing advisor from competing will prove particularly difficult. And since the threat of litigation is often a significant deterrent when advisors are weighing the pros and cons of making such a move, this particular consideration weighs favorably for the advisor.

Despite these considerable factors, there remain some concerns with making a move during such uncertain times. First, not all clients will look kindly upon an advisor who decides to add even greater instability when the markets are already so unpredictable. The departing advisor will need to be able to clearly and convincingly communicate to their clients the reasons for moving to a new firm during a crisis; if those justifications are unsound, they risk losing business. Advisors better make sure they have solid relationships with their clients prior to deciding to move.

Second, although the Automated Customer Account Transfer Service (ACATS) process to move accounts from one firm to another is electronic, advisors will still have to get their clients to execute new account documents to initiate the transfers. Many firms use Docusign and other electronic signature applications, but it still may be a challenge when most people are at home instead of their offices.

Third, much like the firms attempting to retain a departing advisor’s book, the departing FA will have to rely on virtual communications when connecting with their customers, since face-to-face meetings cannot take place.

Nevertheless, it appears that the pros may outweigh the cons when deciding whether to take the leap to a new brokerage firm. Each situation is different, requiring an analysis of various legal and business factors. We are here to help – contact us for a consultation. Transitioning without experienced counsel is a big mistake.

Contact Information