In PFI’s years of experience with breakaways, we have encountered numerous advisors who, in the months leading up to their transition away from their current employer, have proclaimed, “This will be super easy, I’ve known my branch manager for years – they won’t try to take my clients, we’re friends.  While they’ve gone after other advisors who have left, my break will be amicable, there will be no need for me to hire a lawyer.”  To which we can only respond with the adage, “Famous last words!”  The breakaway process can be messy, and it is therefore essential for advisors to prepare for every scenario to ensure they can launch their new venture as smoothly as possible.

When a wirehouse or even an RIA advisor decides to break away and either strike out on their own or join another firm, tensions tend to run high and our clients can find their years-long positive working relationship with their branch manager and/or former co-workers can suddenly turn sour.  The fact of the matter is that while business relationships can grow to be friendly, when push comes to shove (such as the scenario of a branch manager losing an advisor and a significant amount of the branch’s revenue), the business nature of the relationship will automatically take precedence over their friendship, as their livelihood may be on the line.  In the same way that it is essential for an advisor to keep their breakaway plans under wraps until they are ready to launch, it is similarly incumbent upon the remaining branch staff to attempt to retain as many clients as possible – through whatever means necessary.  No matter how many assurances we have received from advisors, there has very rarely been a breakaway where, even if it is amicable, the former firm did not aggressively try to retain an advisor’s clients after they left for another firm.

Considering this, it is necessary that advisors prepare adequately by contracting with transition experts and lawyers who specialize in new RIA set up, and consulting with these transition partners at every turn to ensure that they are not leaving themselves open to potential termination by their employer, or to legal action after the fact.  Wirehouse firms are now used to advisors trying to strike out on their own and take (what the firm views as their) clients with them.  To combat this, there are measures in place to flag any sort of suspicious activity such as sniffing emails for break-related keywords, reviewing computer log-is for irregular activity, and by swiftly terminating employees that they determine to be working towards a break.  It is therefore essential to consult the proper experts to ensure that not only are the advisors successfully keeping their plans secret, but to also ensure that they are not taking any data (even accidentally) with them that could leave them vulnerable to legal action by their former employer.  If a former employer can effectively gather evidence and argue in favor of a court placing a temporary restraining order on a breakaway advisor, this can set transitions back weeks or months and potentially even cause some clients to reconsider moving their assets to the new firm.  This can be problematic, especially for tuck-ins (where an advisor is moving into an existing RIA) as recruitment incentives are based off total assets moved and losing some assets in transition could affect payouts and trigger claw backs.  Breakaways can be stressful enough, even when they go according to plan, so there is no need to let them get more complex through avoidable complications.

We have written on the emotions of breakaway advisors and how there can be a lot of fear going into a large transition and having experts and consultants walking with the team every step of the way can go a long way in terms of quelling fears and keeping the team moving in lockstep towards their goal.  Furthermore, these transitions can be strenuous purely from a time investment standpoint – there will be many late nights and weekends worked and enough paperwork processed, and key decisions made that it can easily overwhelm the most confident of advisors.  However, with adequate preparation, planning, and the consultation of the proper experts, these challenges will be only temporary, and the advisors can soon enjoy the greater freedom afforded to them by their transition.


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