I know a few financial advisers who have had to change the signage on their offices four times in the past 15 years. One week they were advisers with firm ABC and the next it was XYZ. In their cases it was due to their firms being constantly acquired, but more often than not it's the adviser who signs with a new company.
Why all the musical chairs?
The financial advice business operates predominantly on a commission basis. That means that most people who brand themselves as financial advisers are salespeople. Now, that doesn't make them all self-serving as some would have you believe, but there are certain drawbacks to this model - for example the sales quotas. Besides the conflict of interest that commissions and quotas introduce to the client-adviser relationship, the model gives little to no weight to an adviser's financial planning skills. Ironically, in an age where wealth management firms are advocating the value of financial planning advice as a differentiator to lower-cost DIY models, there is no direct incentive for their worker bees to actually do it.
Advisers may switch firms repeatedly during their careers, and for a variety of reasons. Some do so because they want to be able to sell different products. They might switch from a firm that only sells mutual funds to a competitor that allows them to sell stocks and bonds as well. Others switch to hang their hat on a more prestigious rack, for a bigger paycheque, or for more administrative help.
It's worth noting that with a move, an adviser can increase their compensation without an increase in fees to clients. One way firms may be more attractive to advisers is because the split (known as the "payout") of client fees between the company and the adviser may be more favourable than at other firms.
But sometimes, advisers switch because they got fired for not making the firm enough money.
If an adviser begins their career at a bank-owned brokerage, they usually start with a base salary that decreases to zero after a year or two. The commissions are supposed to gradually supplant the lost salary over time. However, most new advisers get the axe for missing quotas or simply quit because they can’t make ends meet. Both are prime targets for recruitment to another firm. The advisers have sales quotas, and the branch managers have hiring quotas. The new firm can benefit from the rookie being a bit less green and some advisers view the opportunity as a second lease on life.
If your adviser is switching firms too often, it's probably a red flag worth investigating. In some cases it might simply be due to his or her firm being acquired. Other times it might be simply a matter of them trying to find the right home for their financial advisory practice as it evolves over the years. Once or twice is pretty normal for the industry, but after that it’s worth asking your adviser for a more detailed explanation.