Episode Transcript
[00:00:01] Speaker A: Hello and welcome everyone. I'm Taylor Pancratz and this is behind the breakaway. Together with my co host, Jason Barber, this show takes you behind the scenes of leaving your captive broker dealer firm and explores the world of RIA independence.
[00:00:20] Speaker B: All opinions expressed on the podcast by the hosts and guests are solely their own opinions and do not reflect the opinion of uptick partners. This podcast is for educational purposes only and is not legal advice and should not be relied upon as a basis for any decisions.
[00:00:41] Speaker C: So I'm just going to read a message that I just got sent to me and. And I want to hear your thoughts, Taylor. So says Jason, hope all is well. I'm helping a $250,000,000 Edward Jones advisor explore options still early with figuring out if he's going to start his own RIA, join one, et cetera. This is the key interesting part. A few advisors. A few is an understatement. A few advisors left Edward Jones recently and management is apparently messaging internally. They'll likely only take, give or take 20% of their book. I've explained the norm is usually far higher. He's a little spooked to know what's realistic, though. He's asked if I have anyone that's left Edward Jones that he could speak to. I just thought that it's just ironic that no exaggeration at all, literally just sat down, that text message comes in, and at the same time, you and I were reading that article that was posted publicly by another person that we talked to about what's kind of the normal percentage book to take with you, right? And I don't want to quote it. I can look it up while we're talking, but I'm pretty sure that it was like 75% is kind of, that's like the bogey.
If you're not better than normal, maybe, would that be a good way to say it?
If you're just kind of average, then you should bring 75%.
[00:02:20] Speaker A: Let me see if I can. I think if you're at a captive broker dealer thinking about breaking away, you should be expecting that you're going to take at least 75% of your clients. That should be what you are expecting. If you do more than that, that's gravy. That's probably what will actually happen. But to conservatively put your head on the pillow at night and think, okay, if this doesn't go well, what am I expecting to transfer? You should be expecting to transfer about 75% of your book, and then the next six months into that transition, you're going to either get some of the people that didn't follow you on day one, or you're going to get new business that you would never have gotten before from your captive broker dealer firm that you just left or from people that you know that have money that just would never put all their money at a place that doesn't give you the capabilities that an RAA does.
[00:03:26] Speaker C: Yeah, so, I mean, we can even talk about the prospect that you visited with today. That sounds like is pretty high probability that we're going to close that deal.
You think back to before we broke away and we got new business and we brought in new assets, but most of the time the new assets that we brought in were really largely just referrals for the most part.
And a lot of that business, I would also add, was probably from out of town, mainly just because I feel like because we carried the same business card as everybody else in town, it was just kind of hard to differentiate yourself. And so there's a ton of assets in this town that were just sort of off limits for us. And candidly, we feel like we are doing a superior job. And we were, even when we were at our captive broker dealer, we were doing a superior job and offering tax advice and tax planning and things of that sort, but we weren't really able to because we were kind of doing that unofficially maybe would be the way to look at it. It wasn't really something that we could actually market ourselves that way and offer, like, hey, this is something that we actually do and we offer this.
It seemed like it was a lot harder to get new assets in the door, whereas now it seems like we're probably on pace to bring in $100 million this year of new assets. That is probably at least three to maybe four times as much new assets as we would have brought in at our prior firm. And that has nothing to do with, we're talking about new money, right? We're not talking about money that, well, we had that money before and now we're bringing that money. We're talking about fresh dollars. So here's the article, though, that shout out to Corey Whalen.
This is an article that he posted on his LinkedIn. So I'm just going to read this says, how much of my assets can I expect to bring with me?
Sorelli partnered together a few years ago to answer that question, surveying over 1500 recently transitioned advisors. So 1500 advisors, that's a large enough population to kind of get a good average. So the short answer is more than you think. So to that advisor that is being told he's only going to bring 20%, very unlikely. So here's the breakdown of assets.
So planned attrition. So that's basically like saying those are people that you don't want to come with you, right. You're not going to call them, you're not calling them. They're saying that that's at 7.2%.
Then they're saying 17.8% is broken down of total actual lost assets. Right. So 17.8% and then 75% is assets that moved with you to the new firm. So then they break it down even further. And they say of that 17.8% that basically you wanted it to come with you, but it didn't.
What's the breakdown there?
So 5.4%, client refused to move to new firm.
3.2%. Former firm recruited the client to stay. In other words, the client chose a different financial advisor instead of you. 3.2% on that.
That's pretty low. 9.1% prohibited from pursuing client. So that's an interesting, like, what do you think that means when you say prohibited from?
[00:07:22] Speaker A: I think that means these people had a conversation with the client or with the previous client. They insinuated, or they said that they wanted to move over, and then you can't follow up with them, you can't contact them again. And so you're just assuming that they're going to call you and they're going to move their account, and they never do because they get busy or life happens or whatnot. And so I think that's what's so interesting about the breakaway movement is it's the greatest lie ever told that your clients are not going to move with you. Why wouldn't they?
They trust you. You have a relationship with them. They're going to have to get used to a whole new advisor. And so basically what you're saying is the relationship that you have with that client is not stronger than them having to get used to a new statement, the way a new statement looks, or just kind of the pain it is to repaper.
But that's what's so great, is.
[00:08:38] Speaker C: You.
[00:08:38] Speaker A: Can try to make it easy, as easy as you can to help these people repaper, especially with the technology today, with docusign, that's why the movement is picking up steam as opposed to even five years ago, because technology allows you to, you can leverage technology and make everybody's life so much easier to just repaper that they just have to open up an email, click a few buttons, and it's done. It's wild.
[00:09:04] Speaker C: Yeah. Or like in our case, we were even able to use in person docusign. Right? Super convenient.
[00:09:10] Speaker A: Yeah.
[00:09:10] Speaker C: You could literally, literally get in the car, drive to their house, have your cell phone in your hand, say, click here, sign here, and next thing you know, the process is started.
[00:09:22] Speaker A: Yeah. And this is for people that were previous clients at your other firm. They know you. You're not even on that call when you're just telling them what's going on because you're not allowed to prospect them. You're just letting them know that you left. And so you're hanging on to that relationship, that they're going to continue to ask questions or say they want to move with you and you're not even able to sell the idea of why you left. And so you might be an advisor that feels like, oh, I'm not going to take 75%.
I'm going to be conservative and say, I'm only going to take 50%. You might just take 50% if you just weren't, the relationship wasn't strong enough. You might just take 50% on day one and then give it a month. Give it three months, give it six months. These people are going to reach back out. They're going to want to know.
Maybe they were too scared to move on with you on day one because that caught them by surprise. But the more they see your name around town, they see you at church, et cetera, they're going to want to do business with you. And then a year later, when you can actually prospect these people and sell them on why you left.
[00:10:41] Speaker C: Exactly.
[00:10:41] Speaker A: The value proposition is, and that's why we're getting all these new assets is because the value proposition is so strong and you weren't able to even tell people that on day one. And you're still going to bring at least 75% of your book and you're not even telling people why this is good for them. They're just moved because they like you.
[00:11:01] Speaker C: Exactly. That's what I'm thinking is to me, like that 9% figure where it was talking about, you were prohibited from pursuing that relationship. I think that's basically where we are right now, is kind of like, hey, once our one year time clock starts or is done, and now we're able to solicit our clients, I think that there's a very substantial percentage of, if you want to call it, I don't even know if we're at 9%. We're probably at five to 8% of our book kind of meets that criteria, because I feel like the number of people that for us personally, that fell into that other bucket of they either chose to go with a different advisor or recruited by the old firm to stay there or just didn't want to move.
Well, I think on those numbers, what was it, like, 2%? It's at most that for us, it truly was just like a couple that I can think of. And so the vast majority that didn't come, I think it's just because, which it's already a small number to begin with, but whoever those people are, they probably meet that criteria of, we called them, we talked to them, life gets in the way, life happens, and then they just sort of decide it's easier to just do nothing at that time.
And you're not really able to, because you're only able to kind of make your one phone call from jail, for lack of a better term.
So you're not able to call people more than that one time. And so then you have to wait a year to try again. So I'm expecting that we're going to end up, if we're already at 90%, I think we're going to end up at 95% or somewhere there and about again, especially if you exclude the 7% that we didn't want, or call it 7% to 10% that we didn't want, I think that's going to get us pretty close. And then if you take the assets that we've recruited that were not our previous clients, I think that very likely, by the time our one year anniversary rolls around, or maybe shortly thereafter, call it maybe by month 13 or 14, I think we will have surpassed where we were before. That's my.
[00:13:16] Speaker A: Yeah, it definitely is a one step back, two steps forward type of. Type of thing. You're obviously going to have attrition. But what's so funny is that, of course, the captive broker dealer is going to say you're not going to take very many clients. Are they going to say you're going to take 100%? I mean, they're not going to tell you that you're going to take a bunch of clients. Of course they're not. And so you just have to go, okay, this is what I. I know this isn't. I know this number is biasly low.
[00:13:45] Speaker C: Exactly.
[00:13:47] Speaker A: It's going to be. So I know this number is biasly low. Let's say it's 20 that these firms are calling. They're telling advisors, oh, you're only going to take 20% of your book and then you can look at the actual data, let's say the survey, for example. Or you talk to any custodian that moves these people, they'll tell you what the numbers are because they see the actual number. They see during the due diligence phase how much money you've got on the books. And then they see it a year later how much money actually moved over. And so they can tell you, these custodian reps, and they'll tell you, like they told us, you're going to move 80% of your book, which is in line with this 75% number. And so that is the reality.
If you miss the mark and you're not taking 75 or 80, maybe you take 50, but you're definitely going to do more than 20. I mean, 20 is like you could not even call anybody and 20% of your clients are going to find you in the phone book.
[00:14:49] Speaker C: Exactly. Yeah, exactly. I mean, the reality is even 50%, probably the only way that you would even be at 50%, I would think, would be if you say you just started and you inherited a book of business and you didn't even really have any kind of a meaningful relationship with those people, and then you broke away, you'd still probably get 50%.
We will bet. But the reality is that if you're listening to this and if you're in that position, we're probably not going to tell you to break away if you literally just inherited a book of business, because we want you to be able to bring more than 50%.
The reality is that after a few years, you have a deep relationship with those people.
You will bring 80 plus percent. I think that should be 75% to 80% is kind of the, like, there's a reason why that's an average. That's 1500 advisors and some people out there, we brought 90 plus percent. Some people bring 60 or 70%, you end up in that average 75.
[00:15:56] Speaker B: Right.
[00:15:57] Speaker C: And that's kind of the reality.
[00:15:59] Speaker B: Yeah.
[00:16:00] Speaker A: I mean, it's definitely one of those things where even if you don't feel like you have, I can just tell you, it's just like when people get into the business and they go, oh, yeah, I'm going to get into the business. I'm going to prospect people. And I know exactly, I know all the people that if I was to talk to them, I know they'd move their account to me, or I know they do business with me. And like everybody listening knows, there's people that you would swear would do business with you that never do. And there's people that you swear would never do business with you, and they do, and it's the same thing. When you transition. There's people that you would go, oh, that relationship is not strong enough. They just became a client, et cetera. Everybody's got these unique situations, and you're going to go, no, they're probably going to move with you. That's what's so crazy about the whole business.
[00:16:46] Speaker C: But the person that you're like, I have done so much good stuff for them. I could swear up and down, like it's 100%, it's a lock. And then they won't, for whatever reason.
That's just kind of the way the cookie crumbles.
[00:17:01] Speaker A: That's the way it goes. But what's important to make sure people are doing is you got to break away the right way, because these are all numbers based on you not getting fired the day before. Right. I mean, that is a totally different thing because the custodian, wherever you're going to move your book to, let's say you're going to move it to Schwab or Pershing or fidelity anywhere, they're not likely giant asterisk, they're likely not going to take you if you just got fired because they don't know why you got fired.
[00:17:40] Speaker C: And you got to wait until the U four gets updated.
[00:17:42] Speaker A: And so the U four is going to be this ambiguous.
What's the status of you? Can you even do business? Do we want you as part of on our platform?
And so that is something that you want to talk about if you can't make a phone call to people for 30 days because they're waiting for your u four to get figured out, for the captive broker dealer to update it and send it in to the regulating bodies, and it comes back to the, I mean, you want to talk about your clients are getting phone calls day in and day out from these other, the advisors that took over your clients accounts. And who knows the things that they're saying to them?
[00:18:23] Speaker C: Well, we know. We know the things they're saying.
[00:18:25] Speaker A: And it might be dead. The rumor might be that you died. Yeah, right. I mean, it's a dog, literally.
[00:18:32] Speaker C: We could talk about that for hours. And we'll have to do a whole nother podcast all about that, about just the crazy things that greed makes people do, the things that they'll say, the things they'll do to try to drive a wedge between you and your client and that relationship is truly unbelievable.
But that tells you that that's what they have to do, right. That just tells you that's what they have to do. They have to do some pretty unbelievable things to try to get that number below 80%, right?
[00:19:09] Speaker A: Yeah, that's why it's this catch 22 or it's like a dichotomy, I guess, in my mind is that the advisor that is worried that they're not going to take. That they're going to take 50% or some, like, they don't have that confidence, the ods are that they're going to start to feel like maybe I need to tell my biggest client. Let me slip them a note. Let me kind of hint to all my big clients that I might be leaving. And what ends up happening is you think you're helping yourself out and you think you're kind of greasing the skids for some of these big clients. And the reality is you could end up really sabotaging yourself because, yeah, these clients like you. They trust you, but they don't know the rules. They have no idea what the covenants are of your contract. And you're not going to get into all this. Well, I'm going to be leaving, but you can't tell anybody, okay? You know how that goes. And so you can't tell your clients to try to grease the skids because what's going to end up happening is you're going to get fired. And then you're like, I tried to help myself out, and now I just set myself back a month of being able to contact these people. So that's a good way to sabotage yourself, thinking that you're trying to help yourself.
[00:20:27] Speaker C: Yeah, exactly.
[00:20:28] Speaker A: That. And telling your assistant, right?
[00:20:30] Speaker C: Yeah.
Telling your assistant, telling your clients has just got to be like, it has to be. The most difficult thing in this whole transition process is not telling those people, not telling the people that are your family. In some cases, not telling them because it's for your good. It's for their good. It's for their interest. It's for your clients interest in the long run. I mean, it truly is one of the biggest things that just really makes you be like, it's crazy that we have to do these kinds of things.
[00:21:09] Speaker A: It's wild.
[00:21:10] Speaker C: It's completely crazy that you have to go to work every day with your aunt, with your mother, with your friends, people that you consider they're either literally family or in a lot of cases, they might as well be family. You've known them for 20 years and you can't tell them what you're doing and what you're working on, not because you don't trust them, but because you know that one of the first things that's going to happen when the news breaks is your prior firm is going to allege that they knew. And they must have known because you couldn't possibly keep that a secret.
And you don't want to put those people in that position to have to lie. Yeah.
[00:21:57] Speaker A: They're going to be asked, did you know? And if you make them lie, that's obviously terrible. That's a terrible thing to. It's a terrible position to put somebody in to have to lie to either their employer if they don't come with you, or to lie when they come with you. And they're going, oh, I didn't know, and they knew.
And it complicates things. Right. You have to keep track of these things. And so what makes better sense is you don't tell anybody. So you don't have to keep up with, oh, who knew officially, who didn't know. You just know because they will be asked. And you want that person, your assistant, whoever that is, to be able to look your regional leader, your supervisor, your former supervisor in the eye and go, I didn't know.
[00:22:45] Speaker C: Exactly.
[00:22:45] Speaker A: Right. Because if they even sniff that that person knew, you're going to get mean. There's no way that that goes well.
[00:22:55] Speaker C: And it goes for your clients, too. Remember how we had stories of clients being asked by, you know, clients calling over there to the old office, and the first thing out of the Edward Jones person's mouth is, did you know that this was going to happen? Right. What do you think the client is thinking? Right. The client is thinking that. They're not thinking that this person is fishing for information. They're just having a conversation. Right. They're just having a conversation like, hey, did you know this was going to happen? Like, slap them on the back, like, hey, that's crazy, isn't it?
[00:23:28] Speaker A: That's crazy. Oh, yeah. No, he told me he was going to think about doing that.
[00:23:32] Speaker C: Yeah. Next thing you, you know, now that I remember, know, David did say something about that he was looking around or that he might do this someday or whatever it may be. And next thing you know, guess what? Tro lawsuit.
[00:23:47] Speaker B: Okay.
[00:23:48] Speaker C: I mean, all kinds of bad things can come from that. So it's just one of those things where, and if you don't think that your clients are going to talk about it, if you think that your client, again, they don't know. They don't understand the seriousness of the situation.
[00:24:04] Speaker A: Yes.
That's our experience with the transition.
We should do a whole podcast on the actual transition walking in that day. So maybe we'll do that. Maybe we'll do that as an episode. But this is just something that kind of caught our eye that seems to be on the mind of advisors is anxious about how much of their book they'll move.
You're going to move 80%, 75%, and you're going to move way more than 20, that's for sure. Yup.
