The Real Cost of Changing Firms Could Be Huge Unless The Benefits Justify It

Monday, January 03, 2011 01:44
The Real Cost of Changing Firms Could Be Huge Unless The Benefits Justify It

Transition costs can easily eat up $10,000 in cash and up to six times that much in lost efficiencies, so advisors being aggressively wooed to change affiliations -- or simply thinking about it -- should make sure that the concrete benefits of the move will make up for it.

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According to the Fusion Advisor Network, which concentrates on practice management, even the best-managed transitions will eat up 5% of a firm's productivity during the first year and possibly add as much as another 5% to its overhead in the form of new materials, settlement fees and lost compensation.


Naturally, different business models bear different costs. RIAs, for example, can switch custodians without needing to rebrand their business or re-capture their clientele; brokerage reps are a lot less fortunate and may end up having to pay to keep their clients (and buy new letterhead).


Once advisors know the real score, they're in a much better position to gauge when -- and whether -- a move will start generating positive return on investment for their business. Does the new firm offer lower fees or a higher compensation arrangement, where applicable? Will additional support help take the load off your in-house support staff in a real way, or only to clean up the disruptions caused by the move itself?






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