Who Does Moving Client Assets Off of Mutual Fund and Annuity Platforms Really Serve?

Transferring clients’ assets from mutual fund and annuity platforms to a broker-dealer’s is highly disruptive, involving burdensome new account documents, lengthy processing delays and, frequently, significant incremental costs.

By Mark Contey

It’s become almost expected for broker-dealers and other wealth management firms that support advisors in today’s independent financial advice industry to encourage those professionals to transfer any client assets they may be holding directly on a mutual fund or annuity provider’s platform to the broker-dealer’s platform instead.

Such a shift is almost always highly disruptive for clients, involving burdensome new account documents, lengthy processing delays and, frequently, significant incremental costs.

So why would a wealth management firm or broker-dealer that claims to prioritize growth and choice for advisors and a positive support experience for clients urge financial professionals to make such a sweeping change?

The stated reasons usually include improved compliance oversight, consolidation of account statements and enhanced investment management.

It’s widely known in the industry, however, that firms have less altruistic incentives for encouraging this shift—namely that they generate additional revenue from assets held on their own platforms through ticket charges and other fees.

It’s time for advisors and firms across the industry to ask themselves whether this practice truly serves the best interests of advisors and their clients. If it primarily exists to serve the needs of broker-dealers and other firms, it may be time for a change.

Here are the key issues and questions to consider:

1. A One-Size-Fits-All Solution in an Industry Based on Choice. One of the biggest reasons advisors go independent is that they want the freedom to define their own business models and support clients in the way that is most closely tailored to their needs. Urging or even requiring advisors to move client assets to a firm’s own platform severely curtails that choice and narrows an advisor’s options for serving clients.

The most obvious and immediate downside to this is the array of new costs many clients will incur once they leave the fund or annuity provider’s platform, including ticket charges, account level fees and annual maintenance fees for retirement accounts.

For advisors who offer to keep client fees in check as part of their core value proposition, this sudden increase in client expenses can do lasting damage to their practices.

2. Unforced Strain on Client Relationships. Moving client assets between platforms isn’t as simple as filling out some forms and obtaining some signatures. The advisor first has to explain to the client why the move is necessary.

Such complicated discussions can alienate clients by forcing them to deal with minutiae like the role of broker-dealers, custodians, clearing firms, product sponsors and other institutions, as well as complex account management questions that—in their minds—should have been settled long ago.

It can also be difficult to convey the benefits of such a move. While some clients may find value in receiving a single consolidated account statement from the wealth management firm or broker-dealer, others will be more focused on the incremental costs they may incur, how much paperwork they’ll have to complete, or the potential delays involved.

In simple terms, bringing assets over to a wealth management firm’s own platform often introduces a new source of strain and friction into the advisor/client relationship—in exchange for a value proposition that many clients won’t see as clear or compelling.

3. Ensuring Proper Compliance Oversight: A Matter of Priorities. Providing proper compliance and supervision of client assets is one of the most frequently-cited justifications firms use in encouraging advisors to move those assets to their platforms.

The fact is, however, that our industry long ago developed the capabilities to properly supervise client assets and account activity on third-party platforms. Most reasonably-sized wealth management firms or broker-dealers today should already have the systems (as well as policies and procedures) needed to manage this challenge. If they don’t, adding them to their existing technology platforms is a straightforward exercise.

The upshot is that firms who claim to be hamstrung by the compliance and supervision requirements of overseeing client assets on product sponsors’ platforms may not be telling the whole story.

The more likely explanation is that such firms have decided that advisors and their clients should shoulder the costs of ensuring compliance and oversight by moving the clients’ assets—rather than simply deploying the necessary systems and doing it themselves. Firms that truly prioritize preserving choice and independence for their advisors should be more than willing to bear these costs.

One of the key differentiating features of the independent financial advice industry is its ability to formulate unique solutions tailored to the needs of every type of client—rather than adhering to one-size-fits-all practices and business models that may not be right for advisors and the clients they serve.

The practice of encouraging advisors to move client assets away from mutual fund and annuity provider platforms—regardless of whether it serves their needs—threatens to undermine that value proposition.

Mark Contey is Senior Vice President of Business Development for LaSalle St., a family of firms comprising an independent broker/dealer, an SEC-registered investment advisor and a provider of annuity and insurance products.