Why a down market won't deter advisers from switching firms

There may never be a “perfect” time for a financial adviser to switch firms. But there is a “good” time — and that's whenever the adviser is ready.

Advisers shouldn't let the current market environment deter them from making a move if they've done their due diligence and believe they've found a better long-term fit for them and their clients. Data show moving to independence has benefited many advisers, with more than 90% saying they have no regrets and would do it again, according to a Schwab Advisor Services poll taken in March 2018.

In the more distant past, financial advisers would never change firms solely based on portfolio performance during a market downturn. In the financial recession of 2008 to 2009, for example, many advisers instead left their firms in a panic because the firm was merging or going out of business.

Fast forward to recent times, when the Covid-19 pandemic transformed perspectives. Now, most advisers tell me they're leaving their firms for lifestyle reasons or to improve the situation for themselves and their clients. Client retention for advisers on the move is very high, because clients trust their advisers to do right thing — including minimizing the risk of loss during downturns.

Changing firms solely based on portfolio performance made sense in the old product-driven world, when advisers were only selling performance. Back then, they would never want to repaper when their clients’ accounts were down because anything that could trigger an uncomfortable conversation needed to be avoided. Client retention depended on it.

While portfolio performance remains important, today’s advisers offer their clients a much broader value proposition that often includes a focus on holistic financial planning. If brokers sold products in the ‘80s, and advisers sold performance in the ‘90s and 2000s, many advisers today have shifted to become financial “life coaches,” still managing investment portfolios, but also working with clients on everything from health care decisions to tax strategies and estate planning. With this type of all-encompassing relationship, absolute investment returns are not as paramount.

Today’s market volatility, high inflation, rising interest rates and fears of recession may be freezing advisers in place, with many reluctant to change firms until the dust clears. But that hesitancy could make this an especially attractive moment for those advisers who have a bit of a contrarian spirit, an independent streak and a longer-term perspective about what’s right for their clients.

Financial security is a very personal and emotional topic. All advisers can provide investment solutions and financial plans, so it's up to the best advisers to go a step further today and provide comfort, coaching, consulting and advice, and hold their clients’ hands through all their financial events. That’s why clients follow these types of advisers to a new firm. This is certainly true in uncertain, stressful and challenging times like these. If you are that trusted adviser, your clients will not want to abandon you, especially now.

Advisers have also come to understand the benefits of communicating with clients on a regular basis. Technology and third-party tools have made this constant contact easier to achieve. Having more frequent interactions with clients makes the prospect of repapering less of a risk, even in a down market, because it wouldn’t be such a rare occasion to hear from their adviser.

I liken it to a patient/doctor relationship. Over time, patients grow to trust and rely on their doctors, even more so in difficult times. If that doctor joins a different practice, the patient will likely follow. Their loyalty is to the professional, not to the office where the shingle hangs.

But loyalty is a two-way street. If you're considering switching firms, you need to understand how the move will impact your clients and be able to articulate why the move is not only good for the long-term health of your business, but how it will improve the service, support and overall experience you provide your clients. If you can do that, a little bit of paperwork shouldn't get in the way of continuing to help clients pursue their financial goals, even when times are tough.

If the past six months has exposed some issues with your current firm — issues that a 10-year bull market made easy to overlook — and you want to look around at other options, don’t let the current environment be the deciding factor that convinces you to stay. The timing might not be perfect, but it may be exactly right for you.

Tim Boostrom is head of business development for Stifel Independent Advisors.