The Agreement Says You Own Your Clients? Read It Again.
(I’m Mike Gordon, independent recruiter and transition consultant. I help match successful advisor-owners with better RIAs, BDs, and OSJs. You work with me when you want an experienced advocate to guide you through firm research, vetting, and negotiations. I’m the Advisor’s Advisor.)
I read a lot of advisor agreements. More than I would like to. These days, I’m absolutely seeing a trend in large broker-dealers and RIAs offering more perks in the recruiting pitch in exchange for less overall autonomy for the advisor.
I can't say that surprises me, considering the current environment, but what does surprise me is how few advisors (and their independent recruiters) read and understand what they're signing up for. These contracts are critical. I'm meeting way too many advisors who only find out their options were limited a few years back when they signed the document... now that they're trying to make a decision toward more independence.
Case Study: “The pitch was wrong.”
I am working with one advisor right now who was told everything he wanted to hear on the way in.
“Full ownership.”
“Complete flexibility.”
“The freedom to leave peacefully and take clients with him.”
Now, he’s exploring his options a few years later; we read the agreement together. The language around client ownership is not what he was told. Not even close. That’s a terrible moment for someone who is already unhappy with where they are. Added to that, you are dealing with a firm that has in-house counsel in every major SEC office and a history of making examples when advisors leave… Ambiguity in that language is not a technicality.
He is well-capitalized. He will be fine, but the transition assistance offers he received were lower than they should have been because the platforms evaluating him read the same agreement and got nervous. You can be completely right and still spend six figures unwinding a situation that should have been straightforward.
This Is Not an Isolated Case
Across the independent space (at OSJs, PE-backed RIAs, large hybrid platforms), agreements have gotten more restrictive over the last three to five years. New terms get presented to existing advisors with thirty days to review. Most sign, but few read carefully enough. Some are finding out years later what they agreed to.
The irony is that the same firms marketing themselves as the antidote to wirehouse control are often the ones whose agreements look most like wirehouse agreements five years in. The platform that was loose and advisor-friendly when it needed to grow becomes more protective once it has built the asset base it was after.
Four Questions to Answer From the Contract, Not the Pitch
Before any advisor I work with signs anything, I want them to be able to confirm their understanding of these four sets of language:
Do you own your client data, and under what conditions can you take it with you?
What are the terms of release if you want to leave?
Can you move to a different custodian without leaving the platform entirely?
If this firm gets acquired or sold, what happens to your agreement?
These are not pessimistic questions. They are the questions a businessperson asks before making a significant commitment. The advisor who skips them because the entry looks good is the one who finds out the hard way what they actually signed.
Know the Prenup Before You Sign
Nobody wants to plan for the exit when they are excited about the entry, but how a firm treats advisors on the way out tells you more about who they actually are than anything in the pitch deck.
If a firm will not let you talk to advisors who have left, that is your answer. If the pattern when advisors leave is that the narrative always puts the advisor at fault, that tells you something about the culture. If the exit terms are vague in ways that consistently benefit the firm, that is not an oversight.
Ask before you sign. Every time.
If you are evaluating a platform or already at one where something in the agreement does not sit right, I have helped 100+ advisors review their agreements. A review is discrete, complimentary, and easy to schedule.
Click here to schedule a time with me.
— Michael Gordon
themichaelgordon.com