Advisors considering a move to a new firm have a lot to keep them up at night: deciding on the right place to land, how new platforms stack up, and of course, portability.
Having invested their business lives faithfully serving clients and growing their books of business, advisors naturally want to bring along as many clients and accounts as is possible and practical. But although every advisor dreams of moving 100% of their book, this can be an elusive goal. Creating a realistic portability goal is critical to developing the business case for transitioning, assessing the likelihood of hitting any back-end bonuses or earnouts, and setting proper expectations with oneself and within a team.
So what’s a “good” portability rate? Our transition data show that those departing traditional brokerage firms tend to move 85% to 95% of desired assets within the first six months. Independent advisors who own their books outright typically realize 90% to 100% portability. On the other hand, private bankers or advisors who have built books via bank referrals or as relationship managers may find a more realistic portability goal in the 25% to 30% range.
After representing thousands of advisors in transition, we’ve found there is no universally ideal portability rate, as every book of business has its own set of characteristics that influence asset capture.
Arriving at the right number is a process that consists of four key steps.
Define your metrics. Portability percentage is most often expressed as those assets under management recaptured at a new firm—but this definition reveals only a fraction of the story. For example, using AUM as the primary metric wouldn’t best serve an advisor who purposely leaves behind $100 million in transactional assets generating only $10,000 a year in revenue. Using the percentage of client revenue transferred may be a more telling statistic, as most advisors are compensated as a percentage of their revenue generated or proportion of profits. In other cases, judging a transition’s success on the percentage of relationships moved may be more appropriate.
Keep in mind, too, that desired portability metrics are often achieved in four to six months after a move, so evaluating a transition’s success too early may not tell the whole story.
Set a reasonable baseline. To arrive at a realistic rate, remove nonportable assets from the equation, like alternatives invested via feeder funds, proprietary products, institutional business tied to the current firm, or assets shared with other advisors where you aren’t the primary.
Additionally, many successful teams make the strategic decision ahead of a transition to “shrink to grow” by leaving behind certain business—for instance, institutional or transactional clients, or accounts below $1 million investible—to focus the business and prospecting efforts on their ideal client profile post-transition.
Factor in specific circumstances. In assessing which accounts are more likely to move, consider whether they were originally gained by the advisor’s own prospecting efforts or assembled via referrals from the institution. The latter is often the case with private bankers or bank-based advisors whose clients are “owned” by the bank and not the advisor. Typically, self-sourced books that are serviced by the advisor will transfer more easily.
Then evaluate the nature of post-employment restrictions. Are there restrictive covenants in the employment agreement? Judging from transition data and anecdotal evidence from many of our clients, whether a move falls under the Broker Protocol or not has little impact on portability when legal counsel is followed closely. However, garden leave, noncompetes, or longer-term nonsolicitation clauses may slow asset movement.
Also evaluate the new firm’s platform. Is it similar to the one at your old firm? Are managers and products priced competitively? What about matching securities-backed loan rates? No two platforms are the same, and while some “breakage” in any move is inevitable, limiting change for clients is certainly preferable.
Make the case. Building a strong “what’s in it for them” narrative for clients will positively impact portability. What are the benefits of a new firm or platform to the client? How does a move remedy pain points? How will it allow you to serve them better? The more specific and tangible the answer is, the better the result.
Ultimately, bringing over a business to a new firm is important, but assessing a realistic portability goal and deciding whether it supports a move rests with you and nobody else.
Louis Diamond is president of Diamond Consultants, a leading recruiting and consulting firm for financial advisors. He has guided many of the top teams in the industry as they have transitioned to other employee-model firms or launched independent businesses. As a next-gen leader himself, he has a passion for representing complex multigenerational teams.