Study Reveals What Motivates Advisors To Switch Firms

Eliane Chavagnon

9 May 2013

The independent channel is seeing the most growth from advisors on the move while also yielding the greatest compensation increases, according to Fidelity Investments’ Insights on Independence study.

The study examined the motivations and experiences of advisors who have switched firms in the last five years, as well as those who have considered a move but didn’t go ahead with it, and advisors who are, in this sense, loyal to their firms.

In the report, these groups are referred to as “movers,” “fence-sitters” and “entrenched,” respectively.

According to the survey, advisors who moved to another firm have realized a 22 per cent increase in their compensation since 2008, compared to a 17 per cent increase for those who stayed where they were.

But advisors who moved to an independent business model, such as a registered investment advisor or an independent broker-dealer, noted the sharpest hike in compensation since 2008, it found.

Another interesting finding was that movers and fence-sitters were more likely to be Gen X or Y advisors and embracing the transition to a more fee- and team-based business, Fidelity Investments said. It added that female advisors were most prevalent in the fence-sitter group, and least likely to be identified as movers.

“While compensation clearly plays a role in advisor movement, the next generation of advisors is considering the whole package - from the type of services they can offer their clients to whether the new firm is a fit for the entire family,” said Sanjiv Mirchandani, president of National Financial, a Fidelity Investments company.

“Understanding these dynamics can help firm leaders recruit or retain advisors ‘on the fence,’ and help advisors better consider their options,” Mirchandani said.

Motivation

In the survey, movers cited upside earning potential as the leading reason for changing firms. An overwhelming 89 per cent of this segment said they were happy with their decision, and - somewhat predictably in light of this - 77 per cent reported being better off financially.

Fidelity highlighted that advisors migrating toward independent models also cited the ability to offer better investment solutions and client service as key criteria for selecting that channel.

Other motivators included confidence that clients would follow, firm reputation and a better work-life balance. But ultimately, advisors reported that one of the most significant influences in their decision to move was talking to other advisors who had also previously made the switch.

Factors keeping advisors “on the fence”

Only 37 per cent of fence-sitters said they were satisfied with their firm, particularly in areas such as marketing support and compensation.

However, the study found that individuals in this group have the highest average assets under management of all three categories. This compares to $149 million for movers and $147 million for entrenched advisors.

When asked what was holding them back, many fence-sitters said “life” often trumped work in their choice not to leave their firm. Family reluctance, commitments such as caring for aging parents, fear of the unknown and losing clients during the transition were flagged as top concerns.

Perhaps unsurprisingly, then, fence-sitters emerged as more risk-averse than entrenched advisors overall. These concerns were particularly acute among Gen X and Y and female advisors, Fidelity noted.

Recommendations for leaders and recruiters

In recruiting or retaining on-the-fence advisors, Fidelity says firms may want to consider focusing on areas of dissatisfaction, such as marketing support and compensation.

Another suggestion involves meeting a prospective advisor’s family, as family matters exerted a “major influence” in their ultimate decision, the firm added.

Also of note, Gen X and Y, and female advisors reported in the survey that work-life balance issues influenced them in particular. Recruiters may therefore want to consider going over these issues with next generation of advisors.

As previosly mentioned, many movers reported that first-hand experiences from others who had moved firms were a strong influence in their decision to move. Therefore, firms should consider connecting advisors with others who have also made the switch.

On a final note, it was found that movers reported some complications with the transition. Paperwork and technology systems and platforms were regarded as the biggest hurdles.

“Movers reported that aligning with external resources can help facilitate the operational aspects of a transition,” Fidelity said.

The 2013 Fidelity Insights on Independence study was conducted in collaboration with Bellomy Research between November 7 and December 11, 2012. It involved 783 advisors, whose assets under management totalled over $10 million .