Registered financial professionals, like many of us, move on to new job and career opportunities for many reasons. They might go to a new firm, for example, for an offer of higher pay, different products and services, or a chance at a higher-level position—or they might have some other reason for leaving the old firm.
As an investor, it can be a surprise to learn that the registered professional you’ve worked with over the years is leaving your current firm. It can also be confusing if you receive correspondence both from your current firm, notifying you that your account will be serviced by someone else, and from your registered professional’s new firm, requesting that you move your account assets to continue the relationship you’ve established with that individual.
FINRA requires brokerage firms to deliver an educational communication to former customers who are contacted about transferring their assets when their registered professional changes from one firm to another. This document highlights important conflict-of-interest and cost considerations of transferring your assets to a new firm, which might not otherwise be brought to your attention in a timely manner. It also encourages investors to make further inquiries to reach an informed decision about whether to transfer their assets to the registered professional’s new firm.
Make an Informed Decision
If you're thinking about whether to follow your registered professional or stay with your current firm, it's a good idea to examine the key issues that will help you make an informed decision. A good relationship is surely valuable to you, but it's not the only factor in determining what's in your best interest. Before making a final decision, talk to your registered professional or someone at your current firm about the five questions below, which are contained in the required educational communication, and make sure you're comfortable with the answers.
1. Could financial incentives create a conflict of interest for your registered professional? Discuss the reasons behind their decision to change firms. Some firms pay financial incentives to new hires when they join, which could include bonuses based on customer assets they bring in, incentives for selling in-house products or a higher share of commissions. Similarly, some firms pay financial incentives to retain registered professionals or customers. While there's nothing wrong with these incentives in either case, they can create a conflict of interest. Whether you stay or go, you should carefully consider whether your registered professional’s advice is aligned with your investment strategy and goals.
2. Can you transfer all your holdings? What are the implications and costs if you can't? Some products, such as certain mutual funds and annuities, might not be transferable. If that's the case, you'll face an additional decision if you follow your registered professional to the new firm: whether to liquidate the non-transferable holdings or keep just these holdings at your current firm. Either way, there could be costs to you, such as fees or taxes if you liquidate, or different service fees if you leave some assets at the current firm. Ask for an explanation of the implications and costs of each scenario.
3. What costs will you pay—both in the short term and ongoing—if you change firms? In addition to liquidation fees or taxes if you sell non-transferable assets, you might have to pay account termination or transfer fees, if you close your current account, or account opening fees at the new firm. (Even if the new firm waives its fees as an incentive to transfer, that wouldn't reduce any transfer or closure costs at your current firm.) Moving forward, the new firm might have a different pricing structure for maintaining your account or making transactions (such as fee-based instead of commissions or vice versa), which could increase or lower your account costs. Your registered professional should be able to explain the pricing structure of the new firm and how your ongoing costs would compare.
4. How do the products at the new firm compare with your current firm? Of course, not all firms offer the same products. You might have purchased some types of investments in the past or have some you’re considering for the future that aren't available at the new firm. If that happens, you should feel comfortable with the products they offer as alternatives. If you tend to keep a lot of cash in your account, ask what investment vehicles are available at the new firm for the cash sweep account and whether the interest rate would have an effect on your return.
5. What level of service will you have? Whether you follow your registered professional to the new firm or choose someone else at your current firm, consider whether you'll have access to the types of service, support and online resources that meet your needs.
Tying It All Together
Be sure you have all the answers you need before deciding whether to stay at your current firm or move to your registered professional’s new firm. Also, keep this in mind: You might have the option of leaving a portion of your assets at your current firm and moving the remainder to your registered professional’s new firm.
If you do make a change, make sure to review the background of your new registered professional on FINRA's BrokerCheck. And if you decide to continue with your current relationship, use the opportunity to look them up in BrokerCheck again to see if there’s any new information.