Culturally modifying the French axiom to the American way, the updated version might be, “The more advisers change firms, the more advisers face lawsuits.”
Nevertheless, many advisers think that the potential future rewards justify the risks.
“My move came after I began to hear new questions from clients,” says Kathy Klein, CFP, and a senior consultant and vice president at Park Place Capital Management in Milwaukee.
“They had become older, wealthier and, after living through several financial crises, more concerned about risk management,” she says. “Also, they were inquiring about more active tax management strategies.”
Klein didn’t think that she could move in that direction with her previous firm, so she sought one with “a model focused on diversification, risk management, tax efficiency and wealth management solutions.”
So she approached her new firm about joining and did.
Klein says that she was unable to make direct contact with most of her clients.
“Prior to leaving, I successfully negotiated a list of clients who were considered exempt from my restricted covenant,” she says. “These were family members, close friends or clients who had special circumstances.”
However, Klein’s other clients were active in maintaining the relationship.
“With LinkedIn, Facebook and the ability to advertise new additions to firm positions, it was not hard for them to find me,” she says. “All I had to tell them was that I was listening to them and made the move to help them find solutions to their most pressing investment challenges.”
Klein was surprised at her clients’ loyalty, as the majority moved to the new firm, so she could continue to advise them.
“I recently had a few additional clients join us here, nearly three years after I departed my former firm,” she says. “They, too, had left my old firm shortly after my departure, and they wanted to give me time to get settled in at my new firm before coming here.”
NEW FIRM, OLD CLIENTS
Klein moved to an existing firm, but Bill Keen founded a new practice: Keen Wealth Advisors, in Overland Park, Kan., where he is chief executive.
“The decision to start our own [registered investment adviser] came from a desire to create an objective financial planning and investment advisory firm, free from the potential conflicts and inefficiencies of the big-bank model,” he says.
Establishing a financial advisory firm may mean dealing with the issue of notifying clients.
“Our newly formed RIA operates under the broker protocol, as did our prior firm,” Keen says.
The Protocol for Broker Recruiting, accepted by many firms, sets out rules for advisers to follow in order to generally avoid legal issues when making a move.
“We followed the broker protocol and informed our clients after departing our prior firm,” Keen says.
“We primarily made telephone calls to announce our new firm,” he says. “As our clients became informed about our decision, the vast majority wanted to immediately make the transition with us without evaluating their newly assigned adviser at the old firm.”
Keen urges advisers who are in a similar position to the one he faced to seek qualified legal counsel that specializes in this area.
“Following that advice takes any guesswork out of this most serious matter,” he says.
This story is part of a 30-30 series on transitions.