Different Name, Same Firm: Cut the Cord & Stop Buyout Hopping

Financial professionals are bombarded with broker-dealer buyouts that ultimately sound great financially, but come with dozens of hidden costs.

Depending upon who you ask, the financial services mergers and acquisitions landscape is either speeding up or remaining strong and steady. Given its record-shattering highs in 2022, it doesn’t really matter if it's growing or staying flat – because it’s already blazing hot. The interesting fallout factor is what happens to broker-dealer or hybrid professionals in this scenario? Who’s looking out for your best interests these days?

Probably no one – which is why you need to take ownership of your future. For financial professionals, the message is simple. You selected a broker dealer, your home, where you built a practice and support clients whom you care for and trust. The trust is mutual – they are with you because you’ve got their back. But everything could change at the drop of a hat. Scary, right?

The future is still yours to define, though. No amount of broker-dealer M&A shifts can touch you when you’ve broken out of those golden handcuffs. But for some, the idea of going independent is even scarier than the alternative. Let’s peel back the layers of buyout hopping to see what’s really behind that curtain. Once you’ve had a glimpse of the realities of a buyout, you might think differently, more openly and more excitedly about the potential for owning your future.

The smoke & mirrors of buyout hopping.

Many broker-dealers will offer incentives and packages that provide a temporary financial benefit to sticking with them post-deal. Even if the paycheck seems appealing, you’re sacrificing more than most financial professionals realize up front. If it sounds too good to be true…it probably is. Buyout hopping can cost you – substantially – and in areas that might hurt in the long run

Here's what professionals frequently face during and post-buyout:

There’s a financial impact of buyout hopping. A paycheck is only one part of the equation. Within a broker-dealer model, receiving this pay requires your client and service models to remain at optimal levels, growing comfortably year-over-year. It might even mean selling services and products that you never intended to fold into your business.

Your ability to deliver quality service and guidance for clients also depends heavily on your technology, back-office support and culture. While you consider this firm’s new payout structure, you’re also relying on their resources to support achieving these goals.

There’s a loss of personal values with buyout hopping. Client trust and loyalty is incredibly valuable. The Qualtrics Client Experience report keys in on several factors that impact whether a client is satisfied and stays with their financial professional. Among these drivers? The belief that their representative provides unbiased guidance and consistency for their experience. Your initially selected broker-dealer may have afforded you an environment that works for your culture and clients, but what about this new one, or the one after that, and the one after that….?

Money in your pocket today doesn’t really matter if you’re signing up for major client attrition in the long run. Not to mention, the culture of where you’re at will play a huge role in your long-term success. If you didn’t choose this broker-dealer when you started your practice, there was probably a good reason.

Clients often suffer most during buyout hopping. Focusing on your payout and your own well-being during a transition leaves little time to prioritize the care of your clients. Consider how multiple transitions could multiply this impact. Your clients rely on you to keep their financial well-being front and center of all major decisions. How does transitioning your broker-dealer time and again play into that story and reinforce trust? 

There is a loss of legacy in buyout hopping. Wave goodbye to any sense of building and sustaining a business that is truly ‘yours.’ Your current broker-dealer, whoever they are, now owns your book. You probably also signed a non-compete and this has transferred to the new firm. Given the pace of M&A, most firms have figured out that component. Think about it; if the purpose of the deal was to acquire clients and top talent, as in most cases, then they are going to protect those assets within the terms of the sale.

Regardless, there’s a lot at stake. One area that threatens profit margins more than others is consistency. A change in broker-dealer can really disrupt a carefully perfected balance of acquiring clients, maintaining efficient processes, and growing revenue streams. Financial professionals who prioritize stability and consistency in their career choices are more likely to build long-term, successful practices that benefit both themselves and their clients. And therein is the real value in the practice you’ve built – it’s not something you just sell back to your broker-dealer, but it’s a business with a measurable value on the open marketplace. That’s where you can not only build and fortify a business, but ensure that it increases in value over time, and serves you well in your retirement.

Am I at risk right now?

Firms would be remiss to ignore the value of maintaining a strong cultural fit, regardless of the talented team they inherit. Ultimately, remember, this is a business deal. If the firm recognizes a poor fit with their current and future culture, this puts their entire deal at risk.  

There’s also a direct impact from having highly engaged employees. These individuals are more likely to show up to work on time, follow processes and procedures, and contribute a 14% higher productivity rate than their peers. Business units benefit substantially from having both highly engaged employees and their increased productivity. According to Gallup, this results in a 23% difference in firm profitability.

As the deal comes together, you may not even know about it – or really be able to test the new culture yet. Often, it’s not until after the deal is announced when you learn of your new owner(s) or firm culture. While giving it time can feel fair, remember, this new ownership group is transacting a business deal. Read between the lines. For example, are they seeking growth in a certain target market, creating a succession infrastructure for aging financial professionals, or looking to add existing clients’ investments into their portfolios? The reason for the acquisition matters because this philosophy and go-forward strategy is going to alter your role.

So while ‘yes’ you are replaceable, the most critical message here is that you are also not required to stay! It is likely that this acquisition or merger is changing nearly everything. Just as you would interview a company offering a new position, you should approach this new firm environment as a chance to interview them.

When should I make the change?

It’s best to know your options and how you want to leave the firm before you hit your breaking point. As you learn more about your current situation post-deal, you can feel confident knowing you are not trapped. You are a highly marketable, capable financial professional who can take their expertise anywhere you choose.

Even if you don’t think your firm is actively pursuing M&A, exploring your options to break out and own your own business might make sense. It’s far better to be prepared and make a change on your terms, rather than the alternative.

Whether it’s time to cut the cord, or you’re simply gathering your options, check out our ebook, “The Next 10 Years,” to see what your future might hold with a firm like Silver Oak.

Sources:

https://www.gallup.com/workplace/236366/right-culture-not-employee-satisfaction.aspx