For Advisors, the Costs of Switching May Outweigh the Benefits

April 1, 2021 — Boston

Advisors seeking to change affiliations or channels may lose client assets and experience unforeseen operational challenges

While advisors identify the ability to build financial value (74%) and a desire for greater independence (67%) as the top reasons for changing firms, the risk to advisors of losing client assets—and challenges related to practice management—should not be overlooked, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.

On average, approximately one-fifth (19%) of client assets are lost when advisors change firm affiliations, in addition to planned attrition. Advisors moving from one independent firm to another report the largest amount of planned asset under management (AUM) attrition.

“Unplanned client attrition is a significant concern among advisors, particularly those who consider breaking away to an independent channel,” according to Michael Rose, associate director. He notes that rates of client attrition can vary considerably from one advisor practice to another. “It is critical that advisors perform an honest self-assessment of the strength of their client relationships, and the share of their client base that could be at risk as a result of breaking away,” says Rose.

In addition to client attrition, advisors switching firms identify operational matters (77%), learning new technology systems (75%), and lost revenue during the transition period (71%) as the top challenges experienced. Given that operational challenges, such as opening new accounts and dealing with account transfers, top the list of challenges, firms investing in related technology and operational personnel are likely to enjoy a significant competitive advantage in advisor recruitment and retention.

“Many large firms are often better positioned to spread large investments in technology across a wider number of advisors and provide greater financial incentives,” adds Rose.

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Note to editors

These findings and more are from The Cerulli Edge―U.S. Asset and Wealth Management Edition, April 2021 Issue.

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