The Trust But Verify Advisor Due Diligence Process

A recent Think Advisor piece entitled “Brutalized Breakaway Brokers Speak Out : 7 Stories From the Road to Independence” really resonated with me. It  includes two horror stories of advisors who were misled by prospective firms during the recruiting process. One branch manager claimed that his firm had an open architecture 401(k) platform and another professed to have the performance reporting technology to support a qualified defined benefit retirement business. These ill-advised  moves devastated the practices of both advisors and forced them into bankruptcy. I was astounded to read that these advisors, including one with $2.4 million in production, would transfer their client’s assets to a new firm relying solely on the word of one branch manager!

In my experience most branch managers are honest and want to hire only advisors who will  do well at their firm. But advisors still need to conduct serious due diligence; they need a process. In the case of the advisors who lost their business, the omission proved reckless.

Ronald Reagan in his  disarmament talks with Mikhail Gorbachev had a much more successful approach. He chose a Russian proverb to symbolize his negotiating posture:”Trust but verify.”

Advisors would do well to heed his advice.

In my experience, three simple steps can save advisors an awful lot of grief.

1. Advisors should schedule in depth conversations with home office product specialists in key product areas. It’s helpful to take detailed notes, especially if interviewing at more than one firm. For example, if an advisor uses outside managers, it’s important to verify not just that the managers are on the prospective firm’s platform-  but that they are available in the programs  which the advisor needs.

2. Advisors should talk with other advisors at prospective firms who do similar types of business. It doesn’t matter if they are in the prospective branch. In fact, it’s advantageous to talk with  advisors in other branches. They have less of a vested interest in whether or not the advisor joins the firm.

3. Advisors need to test drive the prospective firm’s technology. How user friendly is it? Can they execute their investment program easily? This important  topic deserves more in-depth treatment in a lengthier article, but these three steps are a good place to start.




About Mark Elzweig

I am an executive search recruiter with an inside track on financial advisors, the asset management industry, and Wall Street. My work has appeared in numerous publications including On Wall Street,AdvisorOne, and Fund Fire. Journalists regularly seek me out, so you catch my bon mots in The Wall Street Journal, Research Magazine, Reuters, and more. You can follow me on Twitter @elzweig or you can reach me directly at 212-685-7070 or
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