While there is never a “perfect time” to make a move, there are often perfect reasons to do so.

By Mindy Diamond and Jason Diamond

“Sure, there’s plenty wrong with my firm and many things that would make me consider changing jerseys. But how could I even think about making a move in a down market?”

The answer: Perhaps you shouldn’t.

That is if you are certain that the Market is not a red herring—your excuse du jour for not pursuing your best business life. Or even worse: It’s your excuse for staying at a firm that does not allow you to serve clients best and grow your business.

As the saying goes, timing is everything—and that’s even more true in a turbulent market. So how does an advisor know if now is the right time to consider a change?

There are three key questions you need to ask yourself—each geared toward a specific constituent in the decision-making process.

The YOU question: Markets aside, do you feel well served and that your firm is the very best partner it can be? Said another way, are you given the flexibility and control you need to run your business, especially in a challenging environment like this?

The CLIENT question: Are your clients negatively impacted by firm policies, mandates, or other constraints on your ability to serve them?

The TEAM question: Are your team members/support staff happy where they are? Are you in danger of losing them because of unreasonable bureaucratic burdens? This question is particularly relevant in this historically tight labor market.

How lessons learned in past down markets apply today

We’ve been through difficult markets many times before, and our experience has taught us some valuable lessons. Most Advisors, especially those focused on the long-term, seem to fit broadly into three categories along a spectrum.

The first is comprised of advisors who do not feel well-served or know that a “better enough” option exists outside their current firm. These advisors are undeterred by market sell-offs in their quest for other options because there are many things they need to solve for or could do better at another firm or model.

At the opposite end of the spectrum are advisors who feel confident that their current firm is the right place for them in the near-term (regardless of market conditions). While it’s never a bad idea to get educated and ponder a “plan B,” by and large, there is likely no reason for such advisors to consider change.

Those who fit in the middle of the spectrum likely encapsulate the greatest number of advisors. They acknowledge that perhaps a better option might exist outside their current firm and recognize plenty of frustrations and limitations—and ultimately that the grass just might be greener elsewhere. But they look at current market conditions and wonder: “Am I crazy to consider a move now?” Or, worse yet, “There is no way I can consider a move now. Have you seen the S&P?!” 

To this group of advisors, we would say the following:

1. In a bull market, advisors are often reluctant to disrupt momentum. Volatile markets like we are currently experiencing present a unique opportunity for advisors to add meaningful value to clients and prospects. If they are confident in their client relationships, then there is absolutely no reason why a sell-off should preclude them from at least considering their options—especially if their motivation for doing so is rooted in the quest for better client service.
2. In a bear market, clients are much less likely to switch to a new advisor with whom they have no relationship. This is when longstanding trust and relationship capital become even more critical. As one advisor shrewdly put it, “We are paid way too much in a bull market and not nearly enough in a bear market.” When the going gets tough, the tough really prove their value.
3. While we never believe that an advisor should move solely for personal enrichment, it’s worth noting that deals are often structured in a way that presents benefits to making a move in a down market. The standard transition deal includes a combination of upfront guaranteed money and back-end “earnouts” based on asset or revenue hurdles. These back-end hurdles, which may represent as much as 50% of the total deal value, become easier to hit when the initial AUM and revenue numbers are lower. That’s to say nothing of the side benefit of getting a substantial sum of money to personally invest when markets are at a nadir. Lastly, since deals are based on trailing 12 months production, an advisor’s production is quite possibly higher now than it might be in 6 or 12 months should the sell-off persist.

Of course, none of this is to suggest that in challenging market environments you should “take your eye off the ball” and ignore the critical pillars of client service and relationship management. The reality is that much of your focus likely needs to be on shepherding and stewarding clients through the turbulence. But there are some compelling reasons why market factors need not necessarily preclude you from at least considering whether or not the ability to support those pillars is best accomplished at your current firm.

Because the reality is that there is never a “perfect time” to make a move—but, when considered thoughtfully, there are often perfect reasons to do so.

As seen on AdvisorHub…