Are You Secure? 7 Things Every Advisor Needs to Know

7 things every advisor needs to know—regardless of whether you feel secure at your firm or not

With yet another high-profile termination of a multi-billion dollar advisor (referring to last week’s dismissal of Merrill’s $3-billion Chicago superstar), it becomes clearer that Barron’s ranking, status and length of service at a firm, star power and size of business are no longer the guarantors of job security.

While the vast majority of advisors will never have to face the fear that a termination brings, it is an unfortunate reality that there has been an increase in advisor terminations throughout the industry. Tiburon Strategic Advisors Research recently delivered some startling statistics: 97% of all advisor moves in 2017 were the result of some form of termination. While the majority were pushed out for low production or were new advisors flaming out of training programs, still too many were for alleged policy transgressions.

Certainly, there are a variety of reasons an advisor might find himself holding the proverbial pink slip, but many emanate from the current zero-tolerance compliance climate. That said, termination doesn’t mean the end of a career. Developing a clear understanding of what drives employability and swift action to find the right guidance will help a terminated advisor get back to business.

Even if you are feeling completely comfortable that you are safe from potential dismissal, knowledge is power. Here are 7 things all advisors should know:

1. Realize that what used to be okay is not okay anymore

It’s human nature to “get comfortable” and take the occasional shortcut instead of following the rules to the letter, but in today’s environment, even the most minor transgression of company policy can be a cause for termination. Anything from an expense account violation, to an off-color conversation or texting with co-workers, to more significant issues like the use of “pre-signed” forms or other sales practice violations, could result in termination. The message to advisors is that they need to follow company policy scrupulously, all the time.

2. Know what makes it harder to get hired

Firms are scrutinizing terminated advisors more than ever before. The following factors make it even harder to get hired:

  • Sales practice violations.
  • Allegations of sexual misconduct.
  • A pending client complaint—most firms will want it resolved before onboarding an advisor.
  • Unfavorable U5 language—it is critical that a terminated advisor work with an attorney who can swiftly and competently impact reasons for termination, knowing that overly vague or harsh wording can be equally detrimental.
  • Multiple U4 violations.
  • Financial disclosures.

  • 3. Review and clean up your FINRA report

    While waiting for your U5 language, use the time to review if there is anything that can be removed from your FINRA report, such as a lien or any other pending financial disclosures. The fewer disclosures the better.

    4. Cast a wide net

    Firms that brought on a terminated advisor last year or last month could be totally closed for terminated advisors today. Why? Several factors are at play, ranging from changes in company policy, to the percentage of advisors with terminations at the firm, to how recently the firm brought on a terminated advisor. FINRA is scrutinizing firms more closely and keeping a strict watch on those that hire an abundance of advisors with U5 issues. As such, it is important to consider a broad range of options—from major firms to independence.

    5. Consider independence

    While every termination has its own set of related facts that will determine hireability, often advisors who are terminated never want to feel the vulnerability of being terminated again. As such, many will consider going independent, where they retain total control over their business and are not subject to heavy-handed compliance oversight found at a big firm.

    Related: Two Alternative Paths to Successful Succession Planning

    6. Be responsive and transparent

    Advisors need to be responsive to all firms that are willing to engage. Firms want to feel that you are motivated, interested in joining and straightforward about the reason for termination. Provide information in a timely manner and be unwaveringly honest, transparent and consistent in response to questions.

    7. Understand that there may not be a big transition deal waiting for you

    Is there transition money for a terminated advisor? The short answer is, “It depends.” The size of the business, the cause for the termination and the hiring firm are all factors. Where a firm is unwilling to offer an aggressive upfront payment, they will typically pay for the costs of the transition (ACATS) and may offer a higher payout or a significant back-end bonus based upon asset portability. Be cognizant that while the transition money is nice, your main goal should be about getting your career back on track as quickly as possible.

    “I’ve been terminated. What do I need to do?”

    If an advisor is terminated, time is of the essence. Although some firms will not make a hiring decision until the advisor’s U5 language is finalized (technically firms have 30 days in which to do so), terminated folks should take a deep breath and immediately step into action:

  • Hire an attorney that specializes in advisor transitions.
  • Contact a trusted recruiter.
  • Maintain contact with your clients (following your attorney’s strict guidance).
  • Create a personal narrative to explain the events leading up to the termination and to help your attorney advocate on your behalf.

  • Surely, most advisors will never find themselves holding a pink slip, but the fact remains that the environment has changed. Having a clear understanding of your firm’s policies and a Plan B at the ready will put you in a position of strength.

    But for a terminated advisor, gathering the right team and remaining proactive will allow you to maintain control over your destiny and get back to building your business and serving your clients.